YANG FOO-OI by LEUNG PING CHIU, ROY her next friend v. WAI WAI CHEN AND ANOTHER

HCA 1739/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1739 OF 2010

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J U D G M E N T

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1.  This action arose from the distribution of assets (mainly landed properties) belonging to the late Dr Chen Din Hwa (“Chen”), who was the founder of the Nan Fung Group (“Nan Fung”), to his family members. The distribution arrangements in question were embodied in a written Proposal A59807 dated 21 August 2004 (“Proposal A”) which was approved by Chen.

2.  The plaintiff (“Yang”) was, until their divorce in April 2011, Chen’s wife.  They have 2 daughters, Angela Chen (“Angela”) and Vivien Chen, the 1^st defendant (“Vivien”).

3.  On the face of Proposal A, Chen would distribute to each of Yang, Angela and Vivien HK$3b (billion) worth of assets.  This was to be done by distributing to Angela and Vivien each HK$4.5b worth of assets, out of which each of them was to transfer HK$1.5b worth of assets to Yang. 

4.  This action concerns the arrangements made between Yang and Vivien in respect of the former’s share of the assets distributed to the latter by Chen.  These arrangements were evidenced in 2 Proposals[1], namely, B58031 dated 7 August 2004 (“Proposal Y3”) and B78532 dated 27 October 2004 (“Proposal Y5”).  Under these arrangements, Yang agreed, inter alia, to receive from Vivien cash of HK$1.5b in lieu of properties.  These arrangements are referred to in the pleadings as Cash Distribution Agreement and Plaintiff’s Distribution Arrangement (collectively, “Disputed Agreements”).

5.  Yang says that Vivien had taken unfair advantage of her in that the properties she was entitled to under Proposal A were worth considerably more than HK$1.5b[2].  Yang’s primary contention is that the Disputed Agreements are voidable and liable to be set aside for breach of fiduciary duties, non-disclosure in family arrangement, undue influence, misrepresentation and unilateral mistake, and that Vivien remains liable to transfer to her 1/3 in value of the properties she received under Proposal A. 

6.  Alternatively, if the Disputed Agreements are valid and binding, Yang has, firstly, a claim in relation to the beneficial ownership of the shares in the 2^nd defendant (“Timford”), which was incorporated to receive HK$300m (million) to be transferred by Vivien to her under Proposal Y5.  Secondly, under both Proposals Y3 and Y5 Vivien was to arrange for a donation of HK$400m to Yang’s Charity Trust.  There is a shortfall in the donation arranged by Vivien.    

7.  There is a further alternative claim by Yang on the basis that if the Disputed Agreements had not extinguished her 1/3 entitlement under Proposal A, there remains outstanding assets that have not been distributed to her under the same. 

8.  There is a counterclaim by Vivien for declarations that: (a) the distribution of the HK$1.5b from her to Yang and the manner in which the latter would further distribute those assets were governed by various agreements referred to in the pleadings as the July 2004 Agreement as varied by the August 2004 Agreement and October 2004 Agreement[3]; and (b) the shares and assets of Timford are governed by the terms of a declaration dated 20 January 2005, referred to as the “Timford Declaration”, with the implied term that Yang is not entitled to deplete the value of Timford’s shares.

9.  The above is a brief introduction.  Apart from the complexity of the many legal arguments in this case, Yang is now in a state of incapacity, having suffered a major stroke on 7 June 2014[4], and unable to give evidence.  This action is being conducted by her next friend.  Three affirmations of Yang are being relied upon under a Hearsay Notice.  Apart from factual disputes, Vivien takes issue with Yang’s mental capacity at the time when she approved her pleadings and made those affirmations.

10.  Vivien and Timford are represented by the same legal team.  Timford is apparently under the control of Vivien because, apart from Yang, its directors are Vivien and her 3 children. 

Background

11.  There is little dispute over the background facts[5].  Where there is a dispute, it will be indicated so below. 

12.  Chen was the founder and former Chairman of Nan Fung, which was and is a substantial group of companies in the business of real estate and property development.  Chen was a very successful businessman before he passed away on 17 June 2012 at the age of about 89.  He had assets of about HK$50b in 2002, which were located in Hong Kong and overseas. 

13.  Yang and Chen got married in 1949 and divorced in April 2011.  They have two daughters, Angela and Vivien.

14.  Angela is the elder daughter.  She was living in the US and running the business of Nan Fung there before 2003.  Vivien began working for Nan Fung after having returned to Hong Kong in the 1980s[6]. She became the Chairman and managing director of Nan Fung in 2009. 

15.  Timford is a BVI company incorporated in 2005 pursuant to the Disputed Agreements (see below).  It was set up to receive the cash to be distributed to Yang by Vivien.  Vivien was and is the sole shareholder of Timford, and its first directors were Yang, Vivien and Mr Daniel Yip (“Daniel”). 

16.  Daniel was a senior staff member of Nan Fung. He retired in 2009 but continues to work for Nan Fung as a part-time consultant.  He was a witness in this trial. Together with 3 other senior staff, namely, Stephen Cheung (“Stephen”), KL Wong (“Wong”) and Alan Chan (“Alan”), Daniel was involved in the preparation and execution of various Proposals.  These Proposals are important contemporaneous evidence in this case.  Stephen and Alan were also witnesses in this trial.

The Proposal System

17.  As Chairman of Nan Fung at the time, Chen’s approval would be required for various affairs and transactions of Nan Fung.  A proposal system (“Proposal System”) was adopted whereby Chen’s decisions in relation to the operation of Nan Fung would be recorded in standardised Chinese Proposals endorsed by him.

18.  The Proposal System operated as follows:

(1)   A Chinese Proposal summarising the matters that arose for Chen’s decision would be prepared by the relevant person(s) or staff in charge, who would then submit the Proposal to Chen for his review, and where appropriate, endorsement or approval;

(2)   In relation to important decisions, the person(s) submitting the Proposal and other relevant person(s) or staff who might be affected would be summoned for a meeting to discuss the matters raised in the same;

(3)   The outcome of the meeting would be recorded on the particular Proposal, and Chen would sign the appropriate part of the Proposal where the matters raised were approved;

(4)   The Proposal signed by Chen would then be circulated and copied to all the relevant departments and senior staff of Nan Fung, who would then carry into effect Chen’s directions as recorded on the signed document;

(5)   Where a board resolution was needed for a transaction, the matter, having been approved by Chen via a Proposal, would be considered and sanctioned by the relevant board.

19.  The Proposal System was also used for Chen’s personal financial matters, including arrangements for the distribution of his assets.  Chen’s decisions were normally abided by his family.

20.  Yang also used the Proposal System in relation to the distribution of her assets.  Such Proposals were drafted by the senior staff of Nan Fung.   

21.  The senior staff responsible for a particular Proposal would be listed as “the handlers” (負責經辦人) on the document.

Chen’s Holding Ltd

22.  Chen was diagnosed with prostate cancer in about September 1999.  From around late 1999, various Hong Kong assets beneficially owned by Chen were transferred to Chen’s Holding Ltd (“CHL”), the sole shareholder of which was Vivien, for estate duty planning purposes.    

23.  There is a dispute between the parties as to whether the assets transferred to CHL were intended to be gifts from Chen to Vivien.  Vivien says that those were gifts to her absolutely.  According to Yang and Angela, one evening in January 2003, Chen suddenly told his wife that he recalled having transferred approximately HK$18b worth of assets to Vivien but could not recall the details (he was suffering from the onset of dementia at the time).  He asked his wife to look into the matter.  Yang suggested seeking the help of Angela and Chen agreed.  Yang then called Angela and asked her to return to Hong Kong immediately.

24.  Yang’s case is that the shares in CHL, which was holding most of Chen’s Hong Kong assets, were in fact held by Vivien on trust for her father.  This factual assertion is relevant to a key argument in Yang case, namely, breach of fiduciary duty on the part of Vivien.  This argument has gained prominence by reason of the fact that Yang is unable to give evidence in this trial (see the details of this argument below).

25.  The tax scheme alluded to above was succinctly described by Daniel in his evidence, which was not challenged.  In 1999 to 2000, Chen had put in place an estate duty tax scheme (“Scheme”).  A Nam Fung staff by the name of Mr Peter Wu was responsible for the Scheme.  He was assisted by Daniel for that purpose.  The advice from lawyers (including that of an English Queen’s Counsel) and accountants were obtained in respect of the Scheme. 

26.  Under the Scheme, on 8 occasions moneys belonging to Chen were gifted to Vivien in Singapore, and those funds were then used by CHL to buy Chen’s Hong Kong assets which were held via corporate vehicles, ie, the shares of the property holding companies were, on the face of the transactions, sold to CHL.  It appears that the funds were booked in CHL’s accounts as shareholder’s loans (of Vivien).  Daniel explained that the purchase price received by Chen was actually recirculated and rerouted to Singapore to generate those 8 money gifts.  He further explained that if the assets were simply given to Vivien, those gifts would be liable to estate duties in the event that Chen passed away within 3 years of making the gifts. To avoid such tax, a sale of those assets had to be created with the deployment of a round robin flow of funds[7].

27.  Mr Yu SC, appearing with Mr Man SC and Mr Lam for Yang, had explained to the court, based on his understanding of the estate duty legislation, that it was necessary to have the funds routed to Singapore because overseas assets were exempted from estate duties.  Mr Ho SC, appearing for Vivien and Timford with Mr Dawes SC and Mr Man, did not seek to disagree with Mr Yu. 

28.  In May 2005, the entire shareholding in CHL and Vivien’s shareholder’s loan(s) to CHL were transferred by her back to her father.  However, due to importance of this factual matter (see para 24 above), I shall have to resolve the dispute on the beneficial ownership of CHL below.

Distribution of Chen’s assets

29.  From 2003 to 2004, Chen approved various Proposals for the distribution of his assets.  This came about after Yang and Angela had discovered that the shares in various property holding companies owned by him were transferred to CHL.

30.  In his Will made in 2001[8], Chen had provided for Angela and Vivien equally (10% of his assets each).  It appears that the only provision for Yang was a life interest (over 10% of his assets).

31.  There are 2 contemporaneous documents dated 2002[9] which show that :

(1)   Chen intended that 45% of his assets should be distributed to D.H. Chen Foundation, a charity;

(2)   There should be parity between Angela and Vivien in the assets distribution.  Vivien was to be given the Hong Kong assets and Angela was to be given the US and overseas assets of an equivalent amount.

32.  In about January 2003, Yang and Angela found out about CHL and a family discord followed.  There was a family meeting held at Chen’s office on 24 January 2003 (Vivien only joined the meeting at a later stage).  It was attended also by Stephen, Daniel and Alan. A note of the meeting was made by Alan[10]. The family discord is evident from the note.  In a handwritten note of Vivien dated 14 January 2003[11], she promised that she would not be distributed more assets than her sister from Chen’s estate.  These documents reflect the tension between the sisters arising from the distribution of their father’s assets.

33.  Various reports and Proposals regarding the distribution of Chen’s assets were drafted by the senior staff subsequent to the meeting of 24 January 2003.  These Proposals included the following :

(1)   Proposal B63780 dated 11 March 2003[12]: Angela and Vivien would each be given HK$9b worth of assets;

(2)   Proposal B69271 dated 17 March 2003[13]: detailed arrangements were made for the distribution of HK$9b of assets to Angela and Vivien.  It should be noted that such assets included the assets held by CHL;

(3)   Proposal B69291 dated 12 April 2003[14]: Chen amended Proposal B69271 and directed that each of Angela and Vivien be given 50% of the shareholding in CHL estimated to be worth about HK$8b each.  In the event of further gifts or distribution of assets to them, each would receive one half in accordance with the principle of fairness.  Both Angela and Vivien signed on the Proposal to record their agreement.

34.  In a document entitled “資產分配事” dated 14 July 2003[15], Chen’s decision to give HK$6b worth of assets to each of Angela and Vivien was recorded.  It was also recorded that some properties at the Peak and a London property were given to Vivien at her request, but those assets would have to be taken into account in the total distribution to her.

35.  In Proposal A58540 dated 11 December 2003[16], Chen decided to transfer certain assets to Angela’s trust (the trust was to be set up to minimise her exposure to US tax).  The principle of parity between Angela and Vivien was again mentioned, and the sisters signed on the Proposal.

36.  There were a number of documents created in July to October 2003[17] which show that Yang would be included as a recipient in the distribution.  However, for the purpose of saving estate duty, the assets (or part of them) to be distributed to Yang would be held and managed by Angela and Vivien.  Although there was no explicit mention of parity between the wife and daughters in these documents, it is evident from the proposed distribution that they were to receive the same amount.

37.  The principle of parity between Yang and the 2 daughters is not accepted by Vivien.  She says that it only applied between her and Angela.

38.  It is apparent from the contemporaneous documents that Chen changed his mind repeatedly on the distribution of assets, both as to the amount and the manner of distribution.  In Proposal 70653 dated 14 June 2003[18], it was recorded: “建議書B69291...曾經批准陳氏控股公司的股權分配辦法，但其後陳董事長曾多次考慮作出修改，包括調低贈送金額及以其他資產代替，惟至今尚未有定案”.

39.  It appears from the contemporaneous documents that Chen was concerned about minimising the liability for estate duties both in respect of himself and his wife.

5 January 2004 Proposals

40.  On 5 January 2004, Chen approved Proposal A58826[19] and directed that all previous Proposals, relevant documents and discussion regarding the distribution of assets be cancelled, and that each of Yang, Angela and Vivien was to be given HK$4.5b worth of assets. 

41.  On the same day, Chen further approved Proposal B70699[20] whereby he directed that :

(1)   Since Angela had already been given assets of about HK$4.1b (including US real estates and the property at No 8 Mount Austin (“8 MA”), and the value of the London property and 3 Peak properties already given to Vivien amounted to HK$955,745,306.59, about HK$3b worth of Hong Kong real estates should be transferred to Vivien;

(2)   From the 2 groups of Hong Kong properties listed in the Annexure (“Group A Properties” and “Group B Properties”), each said to be worth roughly HK$3b, Vivien should cause to be transferred by way of gift to Yang one of the 2 groups of properties at the choice of the latter[21]; and the other group of properties should belong to Vivien absolutely.

42.  On the next day, 6 January 2004, Yang made her choice in favour of the Group A Properties[22].  That decision was made at a meeting between Yang and Vivien at the residence of the former during which Proposal B70699 was discussed.  As evidenced by a report at D/163 :

(1)   Yang had a long distance telephone conversation with Angela, during which she consulted her on Proposal B70699;

(2)   After the conversation, Yang decided in favour of the Group A Properties;

(3)   Yang also indicated her intention that the HK$4.5b to be distributed to her would be further distributed in the following manner: (i) HK$1b to each of her daughters; (ii) HK$0.1b to each of her five grandchildren; and (iii) HK$1b to each of her charity trust to be managed by respectively Angela (Foo-Oi Foundation Ltd (“Foundation A”)) and Vivien (Chen Yang Foo-Oi Foundation Ltd (“Foundation B”)).

43.  In this case, Vivien relies heavily on Yang’s intention to distribute her assets to her family and charities.

Stephen’s draft Proposal in March 2004

44.  Acting on the instructions of Chen, Stephen drafted and submitted Proposal A58835 dated 23 March 2004[23] for his approval.  It is apparent that it was the genesis of Proposal A.  The arrangement set out in this Proposal was that Angela and Vivien would each be distributed HK$4.5b worth of assets (Angela would be allocated US real estates, 8 MA and other Hong Kong real estates, whereas Vivien would get the London property and Hong Kong real estates), and each of them was to gift HK$1.5b to their mother :

“... 將其所分得的45億港元資產其中15億港元送給陳太，即陳太、陳慧芳及陳慧慧每人將可分得的數目為30億港元。”

45.  On 14 May 2004, Alan wrote a note[24] in Chen’s office upon his direction to record what Chen was told about the distribution of his wife’s HK$3b.  It should be noted that this note came into existence before, according to Yang’s case, misrepresentations were made to her by Vivien in July 2004.  The recorded distributions were in favour of the family and charities (similar to para 42(3) above), except that Yang would keep a sum of HK$300m with each of her daughters.

The 8 July 2004 meeting and Proposals on distribution of Yang’s assets

46.  On 8 July 2004, there was a meeting in Chen’s office attended by Chen, Vivien, Wong, Daniel, Stephen and Alan.  According to a note of the meeting[25]:

(1)   Chen approved the proposal that in respect of the remaining balance to be distributed to Angela and Vivien, respectively HK$0.3b and HK$0.6b worth of assets, they could take certain units from No 80 Robinson Road (“80 RR”) and transfer them to the charities in such manner as Yang might decide;

(2)   Vivien telephoned her mother and sought her view.  Yang had previously confirmed that Angela and Vivien should donate respectively HK$0.5b and HK$0.4b of assets to her charity trusts, and that each of them should gift her HK$0.3b.  It was recorded that the assets (the 80 RR units) would be “taken out” (取出) at the valuation of 31 March 2003 but they would be valued at market rate at the time of injection into the charities;

(3)   Chen directed that Stephen should draft a proposal for the said arrangements.

47.  On 15 July 2004, Proposal B75192 (“Proposal Y1”)[26] was prepared by Stephen (this Proposal, according to Vivien’s case, evidenced the July 2004 Agreement (see para 8 above)).  It set out the following arrangements concerning the distribution of assets which Yang was expecting to receive from her husband via her daughters :

(1)   HK$0.5b be paid to each of Angela and Vivien;

(2)   HK$0.1b be paid to each of the 2 children of Angela and 3 children of Vivien;

(3)   Angela should directly donate certain 80 RR units, which were valued at HK$0.26b as of 31 March 2003 and about HK$0.32b as of 15 July 2004, and HK$0.18b cash into Foundation A (totalling HK$0.5b). Vivien should directly donate certain 80 RR units of the same value and HK$0.08b cash into Foundation B (totalling HK$0.4b);

(4)   Angela should give Yang HK$0.3b in cash.  Yang originally intended to take 8 MA or the shares in the company holding the same, but since Angela had another arrangement she agreed that Angela could give her cash.  However, the appreciation in the value of 8 MA and the 80 RR units should be accounted for, and the total amount of cash that Angela should give her (taking into account such appreciation) was estimated at HK$0.42b.  Vivien should give to Yang the same sum in cash.

48.  Proposal Y1 was signed by Yang.

49.  Next came Proposal A56987 dated 30 July 2004[27] (“Proposal Y2”), in which it was stated that Yang agreed to cancel Part A of Proposal Y1 regarding the arrangements with Angela and that it would be replaced by other arrangements to be discussed between the two.  Angela gave evidence for Yang.  Her unchallenged evidence was that she knew nothing about Proposal Y1 before seeing it.  She was quite upset by it because she did not have the means to make the substantial payments suggested in it.  She duly got in touch with her mother and obtained her agreement to cancel Part A of that Proposal.

50.  On 7 August 2004, Proposal Y3 (B58031)[28] was made (this, according to Vivien, evidenced the August 2004 Agreement) by which Part B of Proposal Y1, which concerned Vivien, was varied as follows :

(1)   HK$0.5b would be gifted to Vivien, and HK$0.1b to each of her 3 children;

(2)   Vivien would arrange donation of HK$0.4b to Foundation B;

(3)   The other matters (which probably meant the remaining HK$0.3b) would be subject to further discussions between Yang and Vivien.

Proposal A and Proposal B58043

51.  By Proposal A dated 21 August 2004[29] and signed by Chen, he directed that :

(1)   Proposals A58826 and B70699 (both dated 5 January 2004) (see paras 40 and 41 above) were cancelled;

(2)   The amount allocated to each of Yang, Angela and Vivien was amended to HK$3b;

(3)   Each of Vivien and Angela should be allocated HK$4.5b worth of assets, but they should respectively gift HK$1.5b worth of assets therefrom to Yang.

52.  By Proposal B58043 dated 30 September 2004[30] (“Proposal B”) and signed by Chen, he approved the allocation of assets to Vivien under Proposal A.  They included the HK$3,977,378,420.80 worth of London and Hong Kong properties already distributed to her.  With the agreement of Yang, the balance of HK$522,621,579.20 would be made up of 67 unsold units and carparks in 80 RR.  It was stated that the valuation as at 31 March 2003 would continue to be used in calculating the value of such units and carparks.  As for Angela, the assets already allocated to her, namely, US real properties and 8 MA were worth HK $4,246,752,899.75.  The remaining HK$253,247,100.25 would be considered and approved later after Angela had set up the trust to receive 8 MA.

53.  There were 2 attachments to Proposal B, namely, 2 lists of properties of 80 RR.  They were referred in the trial as “A List” and “B List”.  It appears that the 67 units were identified in these Lists. They were signed by both Vivien and her mother. 

54.  On the evidence before the court, Proposals A and B contained the final decisions by Chen in respect of the distribution of assets to his wife and daughters in 2004.  Four points should be noted :

(1)   It was a distribution of landed properties;

(2)   The distribution exercise actually began in July 2003.  There is a table at CB/83 which set out precisely the properties received by Vivien[31], the dates of transfer and their values.  Matching the information contained in Proposal B, assets in the total value of HK$3,977,378,420.80 had been transferred to her by the 10 May 2004.  A little over 1 month after Proposal B, the 80 RR units were transferred to Vivien thereby completing the distribution of HK$4.5b of assets to her;

(3)   The properties were valued as at 31 March 2003. Valuations based on that date were used to calculate the amount of assets to make up the HK$4.5b;

(4)   Hong Kong was affected by SARS in 2003.  The property market suffered badly as a result.  However, the market quickly recovered and by September 2004 (date of Proposal B) property prices had significantly appreciated.  The fact of significant appreciation is not in issue.  The difference between the parties is the precise amount of appreciation.

Proposals B78519 and B78532

55.  Two Proposals concerning Yang’s asset distribution came into existence in October 2004, namely, Proposal B78519 dated 15 October 2004[32] (“Proposal Y4”) and Proposal Y5 (B78532) dated 27 October 2004[33] (according to Vivien, these Proposals contained the terms of the October 2004 Agreement).  The former was not signed by Yang, but the material part was repeated in the latter.  Under these Proposals :

(1)   Vivien would transfer the 80 RR units allocated to her under Proposal B to a company held by her and raise funds by mortgaging them;

(2)   The gift of HK$0.3b to be made by Vivien to Yang would be increased by the appreciation in the value of the 80 RR units from 31 March 2003 in accordance with the valuation of the bank;

(3)   The HK$0.3b in cash (or such increased amount) should be paid by Vivien to Yang before 31 January 2005.  Yang agreed to put the funds in an overseas company and to invest in overseas assets so as to reduce the risk of taxation in the future;

(4)   A timetable was provided for the donation of HK$0.4b by Vivien to Foundation B, which was to be completed before 30 June 2008.

56.  By virtue of Proposals Y3 and Y5, Yang had disposed of one half of her entitlements under Proposals A (the HK$1.5b assets to be received from Vivien) mostly in favour of Vivien and her children.  In this action, she seeks to rescind these Proposals.

Timford

57.  Timford was incorporated in the BVI on 5 January 2005 to receive the HK$0.3b (or such increased amount) (see para 55(3) above). The first directors of Timford were Yang, Vivien and Daniel.  Yang, Vivien and Daniel signed a board resolution dated 17 January 2005 whereby Vivien was allotted 1,000 shares in Timford. 

58.  In a report dated 19 January 2005[34], Daniel reported to Yang that based on the valuation of the bank, the HK$0.3b would be increased to HK$378,870,000 by reason of appreciation in value of the 80 RR units and Vivien would arrange for a sum of HK$379m to be paid to Yang in accordance with the method provided in Proposal Y5.

59.  There is a declaration of trust dated 20 January 2005[35] executed by Vivien and witnessed by Daniel in respect of Timford (“Timford Declaration”).  Vivien says that this document was made in reliance on certain representations made to her by her mother.  This is a highly controversial matter. 

60.  By a Chinese letter dated 2 December 2007[36] addressed to Daniel, Stephen and Wong, Yang confirmed in writing that the distribution of assets to her via Vivien had been fully accomplished and completed.

61.  In July 2008, Angela made an application to the court for her father to be declared a mentally incapacitated person and for the appointment of a committee to take care of his affairs.  An order was accordingly made in November 2008.  It appears that the family was fractured into 2 sides as a result of the mental health proceedings, with Yang and Angela on one side and the rest the other.

62.  In December 2009, Yang petitioned for divorce with her husband.  A decree absolute was granted for the divorce by consent on 19 April 2011.

63.  By a note dated 21 December 2009[37], Yang gave a direction to Daniel for the transfer of the entire shareholding of Timford to her.  Vivien has to date refused to comply with the direction.

64.  As regards the donation by Vivien to Foundation B, it is common ground that there is an outstanding obligation of HK$40.855m. However, Vivien says that in early 2008 at Yang’s home, she was instructed by her mother that she needed not make any further donation to ensure parity with her sister who was procrastinating in making her promised donation.  This is disputed.

65.  The above background is largely based upon uncontroversial contemporaneous documents.  These documents are important because, inter alia, they evidence the important factual matrix against which this court will have to construe the key documents in this case.  Further, the lack of viva voce evidence from Yang renders the documentary evidence all the more important. 

Witnesses

66.  Two factual witnesses were called for Yang: Angela and a solicitor, Mr Lam, who witnessed the making of 3 affirmations by Yang at a hospital.  In additional to Vivien, Stephen, Daniel and Alan, Vivien’s daughter (Ms Karen Cheung (“Karen”)) also gave evidence for the defence.

67.  The valuation experts for the London property were not called because they had agreed on the valuations.  In respect of the Hong Kong properties, the experts who testified for Yang and the defendants were respectively Mr Cullen and Mr Chan.

68.  Three medical experts also gave evidence, 2 on behalf of Yang and 1 for the defence.  On Yang’s side, they were Dr Wong, a psychiatrist who examined the mental capacity of Yang on many occasions, including those when she made her affirmations, and Prof Cheung, a neurologist who has been looking after Yang since she suffered a stroke in December 2010. A psychiatrist, Dr Chan, gave evidence for the defence.  The medical evidence goes to the reliability or weight of the hearsay evidence of Yang. 

Resolving factual disputes

69.  Mr Ho has referred this court to Hui Cheung Fai & Anr v Daiwa Development Ltd & Ors, HCA 1734/2009, 8 April 2014, §§77 to 83 on the proper approach for assessment of evidence.  I shall be guided by the general principles therein set out.  In particular, inherent probabilities and undisputed contemporaneous documents will be given due consideration. 

Credibility of the factual witnesses

70.  With the exception of Mr Lam, Alan and Karen, the factual witnesses were cross-examined at considerable length.  I should therefore say a few words on how they impressed me as witnesses.  At the risk of stating the obvious, where a witness is found to be unreliable it does not follow automatically that all of his/her evidence is rejected.  I deal with the credibility of the witnesses in the order in which they were called (I will also comment on some of the evidence of the witnesses in setting out my findings below on the contentious issues).  For obvious reasons, the evaluation of Yang’s paper evidence is a different exercise, and for reasons which will become apparent, I shall consider her evidence when I deal with the case of misrepresentation. 

71.  For the purposes of assessing the credibility of the witnesses, there is a set of agreed facts and a body of undisputed documents which provide (a) a reasonably reliable picture of the facts and (b) a basis to test the veracity of the viva voce evidence. 

Angela

72.  Angela was in the witness box for the better part of 2 days.  It is Vivien’s contention that her sister was instrumental in the engineering of a false case against her.  Despite such serious allegation, the point was not even put to Angela.  When that omission was raised with Mr Ho, he indicated that he was content to leave the matter on the fact that Angela stands to gain from her mother’s estate[38] (and therefore indirectly from the success of this action).  I have to say that I do not find this remotely satisfactory a manner in which to address such a serious allegation.  On any view, Angela is a very wealthy person.  The suggestion that she stands to gain from her mother’s estate and therefore she instigated a false case against her sister for some more money is a serious allegation indeed.  Not giving her an opportunity to answer such an allegation is gravely unfair, and for that reason alone I have no hesitation in rejecting the same.   

73.  In any case, I find Angela to be an impressive witness, who was forthcoming and spontaneously doing her best to answer questions concerning matters which happened many years ago.  I find no material inconsistency between her evidence and the documents.  One has to bear in mind in particular that most of the documents on which she was cross-examined was not written by her.  Therefore, variation between such documents and her recollection cannot automatically be equated with lack of candour on Angela’s part. 

74.  Angela is about 65 years old and obviously a sophisticated person.  She spoke softly but firmly.  She would often look to the court when she answered an important question.  She was patient in answering many questions which were of a repetitive nature.  At one stage in re-examination, she was asked about the time when her father was very ill. Angela was visibly upset, but she tried hard to control her emotion instead of revealing it.  Her demeanour as a witness is convincing. 

75.  I struggle to find many subjects of cross-examination of Angela which are of real relevance to this action.  There are two points I should mention about Angela and 8 MA.  She was asked a number of questions in cross-examination with the view to challenging her credibility.  In Proposal Y1, there was a suggestion that Angela wanted to keep that property and give her mother cash in lieu of it.  Angela explained that she knew nothing about the document before receiving it.  She was very upset and confused by it.  She had not received any of the HK$1.5b of Hong Kong assets and therefore was in no position to give her mother HK$420m in cash. Angela also said that she had a lot of problem with the transfer of the US assets to her at the time.  Her reaction at the time was to ask her mother to leave her out of the exercise.  Hence, Proposal Y2 was made about 2 weeks later.

76.  I have no reason to doubt Angela’s evidence because, firstly, it is common ground that Proposal Y1 was written by Stephen. At that time, Angela was in the US.  Secondly, 8 MA was in fact transferred to Yang in 2005.  Thirdly, Angela’s evidence is supported by Proposal Y2.

77.  On the same subject, Angela was also asked about a reference in Proposal B to setting up a trust by her to receive 8 MA.  Angela was puzzled by that proposition because it made no sense to her to have a trust set up to receive the property when it had to be transferred to her mother later.  One has to bear in mind that, again, Proposal B was not Angela’s document and there is no suggestion that it was discussed or agreed with her before it was finalised. 

78.  Angela’s evidence that she was given a blank transfer form by Stephen for the shares of the company holding 8 MA is consistent with Stephen’s evidence.  Angela said that she was concerned about her US tax liability if she was to receive that property, and therefore the document was simply kept in a safe belonging to Nan Fung.  I am unable to see anything of real importance arising from these matters concerning 8 MA.  There is certainly no reason for me to doubt Angela’s evidence in light of those matters.  

Mr Lam

79.  Mr Lam oversaw the making of Yang’s 3 affirmations.  The affirmations were read over and explained to Yang by her solicitor, Ms Chen.  In the course of making the 3^rd affirmation certain amendment was made to the supplemental witness statement exhibited to that affirmation.

80.  There was no real challenge to Mr Lam’s evidence, and I see no reason not to accept the same. 

Stephen

81.  Stephen has been Vivien’s executive assistant since 1995.  Apart from being 1 of the 4 senior staff assisting Chen in the distribution of his assets to his family, Stephen was the drafter of most of Chen’s Proposals.  However, those documents would be circulated amongst the senior staff involved before finalisation. 

82.  Stephen was cross-examined on Proposal A.  He confirmed that he had followed faithfully Chen’s instructions in drafting that document.  It was circulated to at least Wong and Alan before it was finalised, and there was nothing of importance which had been omitted from the document. 

83.  Stephen was questioned about the suggestion in para 27 of his witness statement that Yang would only get HK$1.5b worth of properties or cash but not 1/3 of what was distributed to Vivien.  In particular, he was asked by the court to explain why if the assets given to the daughters were in fact worth more than HK$4.5b the mother would not be entitled to 1/3 of those assets.  The two reasons he gave for the position he took are difficult to accept. 

84.  First, he said that the daughters had already received over HK$3b of assets at the time of Proposal A and they might not agree to give any appreciation in value of such properties to the mother. However, he agreed that there was nothing to prevent the daughters from transferring what they had received to the mother.  Further, he agreed that the daughters would follow their father’s instructions.

85.  Secondly, Stephen said that Chen knew about Proposal Y1.  However, that Proposal was largely cancelled by Proposals Y2 and Y3 by the time Proposal A came to be made.  In any case, Stephen agreed that when Proposal A was made there was no condition imposed by Chen which Yang would have to satisfy before getting her share of the distribution of assets. 

86.  Stephen’s attempt to justify his understanding of Proposal A[39] with reasons of this kind does not instil confidence in his evidence.

87.  This witness was also cross-examined at length on the documents which stated that Vivien was holding CHL on trust for her father or the family.  Stephen was evidently uncomfortable about answering such questions.  Whilst that itself is not necessarily a reflection on his credibility, I find him evasive when simple questions were put to him. Further, instead of answering questions, he repeatedly made use of the opportunities to give evidence in support of Vivien’s case.  Such behaviour reflects poorly on the reliability of his evidence. 

88.  A clear example of the unsatisfactory nature of Stephen’s evidence is the fact that he tried to resile from his evidence that Vivien had told him on more than one occasion that she was holding CHL on behalf of the family[40].

89.  I do not find Stephen to be a reliable witness.

Daniel

90.  Daniel had worked in Nan Fung for over 35 years before retiring on 1 August 2009.  He is qualified as an accountant.  From 1 June 2000 until his retirement, Daniel was the Finance Director and Head of Accounting Department of Nan Fung.  Since his retirement, he has been working for Nan Fung as a part-time consultant.   

91.  I have a clear impression that Daniel was very careful not to say anything which might be thought unfavourable to Vivien’s case.  Despite a number of contemporaneous documents on the issue whether the shares in CHL were given to Vivien absolutely, it took many questions in cross-examination to get him to admit that Vivien had told him on more than 1 occasion that she was holding those shares on behalf of the family.  Given his intelligence and his understanding of the concept of a trust, I believe he was evasive in answering these questions.  When he was re-examined on this issue, he went back on what he accepted in cross-examination.  This demonstrated that he is an unreliable witness. 

92.  On another key issue – Yang’s entitlement under Proposal A – Daniel’s evidence again lacks credibility.  He accepted that, as a matter of mathematics, Yang was entitled to 1/3 of what was given to the daughters.  However, he disagreed with the proposition of 1/3 entitlement based on 1 reason, namely, that some of the assets had already been distributed to the daughters.  In the case of Vivien, HK$3.9b of assets had been distributed to her at the time of Proposal A.  He was asked to explain why that should affect how much Yang was entitled to bearing in mind that the scheme in Proposal A was that the assets would first be distributed to the daughters before they would be gifted to the mother.  He was unable to do so. 

93.  Later on, Daniel agreed that Yang was entitled to 1/3 of what was received by the daughters.  However, Yang’s entitlement was affected by: (a) the fact that much of the assets were already distributed to the daughters and (b) she had agreed to redistribute most of her assets.  None of these reasons make any sense.  Importantly, they constitute no reason to maintain, as Vivien does, that Yang was only entitled to HK$1.5b in assets or money. 

94.  Daniel was intimately involved with the setting up and operation of Timford.  His evidence on this issue was ambiguous. However, in the face of a number of documents, some of which came from him, Daniel agreed in cross-examination that he had always taken the view that Timford belonged beneficially to Yang.  Yet, at the end of December 2008 when he was ready to transfer all Timford’s assets to Yang in accordance with her instructions, he failed to do so because of Vivien’s disagreement.  This suggests, inter alia, that Daniel was acting in accordance with Vivien’s directions. 

95.  The above evidence sits uncomfortably with Daniel’s evidence on what Vivien had allegedly told him about what Yang had said to her as a result of which her mother only had a life interest in Timford (referred to as the “Timford Representations” in para 59(2) of the Amended Defence and Counterclaim at A/85-86).  The conversation with Vivien was said to have taken place at about the time when the Timford Declaration was signed. 

96.  In essence, Vivien alleges that it was her mother’s intention to ensure parity between her and Angela.  Therefore, Yang would not hold the assets herself because that would mean that the assets of Timford would form part of her estate and half of which would go to Angela.  It is said that Yang also “promised [Vivien] that as it was her intention to leave the assets/shares of Timford to [Vivien] and/or her children, she would only make use of its assets when she had good reason to do so”.  If this part of the evidence were true, it is difficult to understand why Daniel would have thought all along that Timford belonged to Yang. 

97.  I am not inclined to believe the evidence about the Timford Representations or life interest.  Apart from Vivien’s lack of credibility as a witness (see below), I find such allegations inherently unlikely.  Yang had already given most of her HK$1.5b away, why would she limit her power to dispose of the remaining HK$300m as and when she pleases?  There is no documentary evidence in support of the allegations.  To the contrary, the alleged life interest is inconsistent with the Timford Declaration, which was created under Vivien’s instructions, under which Yang had an absolute right to use or dispose of the assets in Timford.  Further, the plain fact is that Yang had been able to draw upon Timford’s assets without inhibition: on 5 December 2008, Timford transferred US$19.35m to Yang. 

98.  On the whole, Daniel’s evidence shows that he was doing Vivien’s bidding.  

Vivien

99.  Vivien said that she was affected by certain medication taken by her at the time of her father’s death in that her memory had become poor.  Taking that into account, Vivien did not impress me at all as a witness.  She had great difficulty in answering questions directly, especially on the important issues where there are contemporaneous documents which may be seen to be inconsistent with her case, eg, on her mother’s entitlement under Proposal A. 

100.  I do not believe that Vivien’s difficulty in answering questions can be attributable to poor recollection.  One has to bear in mind that she is a sophisticated person, in charge of a company of considerable size (apart from her public positions).  This is an important litigation which has been going on for many years.  There are many documents which would assist her in recalling the events.  Three witness statements from her had been filed in this action, the first of which is of considerable length.  In these circumstances, one can reasonably expect that when she was asked about important issues, like her understanding of mother’s entitlement under Proposal A, she should be able to provide a clear answer.  But that was not the case.  Instead of answering questions, she repeatedly resorted to long explanation about what she alleged to have taken place involving her family members. 

101.  I am in no doubt that Vivien is not a candid witness, and she resorted to her long repetitive answers because she was unable to answer the questions and she took refuge in a script she had worked out before giving her evidence. 

102.  As another example, Vivien was taxed in cross-examination about her ownership of the shares in CHL.  She was taken to a quantity of documents which may be seen to suggest that she was holding the shares on trust for her father.  Many of her answers were vague, and it was quite apparent that she had no good explanation in the face of the documents like CB/3 (“我名下的陳氏控股公司股份乃是代為管理，隨時可以轉出”), which was written by her, and CB/9 (“從頭到尾都只是代管而持有的心態”). 

103.  Vivien’s explanation that she was preserving the assets (CHL) for the family although they were her assets is difficult to understand.  I believe she said that as an attempt to answer the documents.  “Holding and managing on behalf” (代管而持有) is a simple concept.  It is inconceivable for senior staff like Daniel (the author of the report to Vivien at CB/9-11) to have misunderstood it and therefore misinformed Yang when he was asked by Vivien to explain the matter to her mother.  Vivien agreed that she had seen a copy of that report.  She would have objected to it if she in fact owned CHL beneficially.  There was no such objection according to Daniel[41].  Indeed, Vivien agreed that the explanation contained in the report was consistent with what she herself said all along[42].

104.  The fact that Chen had asked Vivien to write a note (exhibit “P1A” at Further Documents Bundle “FDB”/20) to the effect that the latter was “managing the properties under Nan Fung’s name[43] on behalf” (“本人陳慧慧現有的南豐名下之物業是代為管理”) speaks volumes.  The father was seeking an assurance that he would not divest himself of the properties after they were transferred to Vivien. 

105.  Vivien also contradicted herself in the course of her evidence.  For example, on whether she had seen exhibit “P2” (CB/88-1 to 88-3).  It was a document signed by Chen.  It referred, inter alia, to Vivien holding the CHL shares on his behalf and that they would be returned to him.  It was clearly an important document which concerned her.  The weight of the evidence, especially that from Stephen, suggests that she would have been seen it soon after it was made.

106.  Further, Vivien had no good answer on why she had failed to disclose highly relevant material in this trial (exhibits “P2”, “D1” and “D2”) until after this trial had started.  Such behaviour is unhelpful to her credibility as a witness. 

107.  Finally, I should mention that in her evidence Vivien took every opportunity to make adverse comments against Angela.  It is clear to the court that Vivien has deep-seated feelings against her sister.  As an illustration, Vivien’s evidence is that she refused to transfer Timford’s assets to her mother against her wish because she felt that it was unfair for her mother to use Timford’s assets for renting 2 properties for the use of Angela’s sons (on her assessment, the money involved would not exceed HK$100,000 per month) when Angela had the means to do so. 

108.  This court is not concerned with the relationship between the sisters, less so on who is right or wrong.  However, whilst Vivien’s feelings about her sister may not, per se, be indicative of her credibility, the way in which she kept bringing out irrelevant evidence in her answers certainly gave rise to the impression that she had no good answers and was shifting the focus. 

109.  Regrettably, it seems to me that Vivien harbours very strong feelings against her sister.  So much so that she would refuse to return Timford to her mother just because she believed that Angela would indirectly benefit from it.  Vivien is obsessed about being treated fairly in that her sister must not get more than her from the parents.  I have little doubt that such feelings had clouded Vivien’s judgment, and can explain some of the actions which she had taken. 

110.  Under cross-examination, Vivien admitted that she defended the Timford claim not because of any Timford Representation but her belief that Angela would benefit from Timford[44].  This is a very poor reflection of her credibility.  

Alan and Karen

111.  The evidence of both Alan and Karen was short. In respect of the former, he was mainly cross-examined on the records he made at CB/4 and CB/44.  There was no challenge to his credibility.  As regards the latter, there is little in her 3 witness statements which is of relevance.  She was cross-examined on the inadequate discovery made by the defendants.  Her evidence was not seriously challenged, but I do not believe that this criticism was answered. 

CHL exercise

112.  There is an abundance of undisputed documentary evidence which demonstrates, as contended by Yang, that the transfer of Chen’s Hong Kong assets to Vivien via CHL was no more than a tax evasion scheme and Chen remained at all material times the beneficial owner of such properties.  

113.  I have already referred to the artificial nature of the exercise with the deployment of a round robin flow of funds as explained by Daniel (see paras 25 and 26 above).

114.  I have also referred to some of the documentary evidence in the course of dealing with the credibility of witnesses.  In addition, I would also refer to the following :

(1)   CB/1 is an undated document in Chen’s handwriting.  It referred to a demand for Vivien to transfer back (“轉還”) assets to his personal account even at the cost of paying tax (“頂多付稅”).  It clearly referred to the properties under CHL.  Vivien’s evidence that she could not understand what her father was referring to and that the reference to tax might be to stamp duty cannot be taken seriously[45];

(2)   CB/2, dated 30 December 2002, is again a document in Chen’s own hand.  It referred to properties managed by Vivien on his behalf (“慧慧代我管物業”), and a desire to have them returned;

(3)   There was a meeting at Nan Fung’s office on 24 January 2003 where the CHL exercise was discussed.  Alan made a note of that meeting (CB/4-8).  It recorded Daniel as having said that Vivien had indicated that she was holding [CHL] on behalf of Chen, which was subsequently amended to “the family” (“不當作自己，是代家族持有”).  Alan’s evidence is that Daniel did say that: (a) Vivien was holding [CHL] on behalf of Chen; (b) she was holding it on behalf of the family; and (c) she was not treating it as her own [asset].  However, the witness was unclear as to who crossed out the reference to Mr Chen[46].  I agree with Mr Yu that this document is plainly inconsistent with any notion that Vivien held the CHL shares and assets absolutely;

(4)   CB/15 contains a note written by Daniel on 13 February 2003 which recorded that Chen had kept a note from Vivien in his wallet which recorded that she was willing to return the CHL shares to him at any time.  Daniel had seen that note taken out by Chen from his wallet[47].  This evidence is consonant with the observation made in para 104 above.  The weight of the evidence is that the note kept in Chen’s wallet was either exhibit “P1A” (FDB/20) or “P1B” (FDB/21).  The latter is the more likely despite Vivien’s denial that the last sentence of that document was written by her; 

(5)   D/45 is a report from Daniel to Chen dated 31 March 2003, in which Daniel repeatedly wrote in respect of CHL that in law Vivien was the shareholder but in fact she was holding it on behalf of Chen (“法律上，陳慧慧是股東，實際上，代陳先生持有”).  I agree with Mr Yu that this is the clearest expression by a qualified accountant, who knew about the distinction between legal and beneficial ownership[48], that CHL was held by Vivien on trust for her father;

(6)   CB/88A-F (exhibit “D1”) is a report by Daniel recording the events of early March 2005.  This document shows that there was an understanding between the father and daughter that CHL was held by Vivien on behalf of her father, and Chen had the right to require their return.  Chen was recorded to have said to Vivien over the phone: “那些香港資產是我要你代為出面管的，我現在要收回，為什麼不交還給我”(CB/88B);

(7)   There is Deed of Indemnity between Chen and Vivien dated 3 May 2005 (CB/88-4).  It appears that this document was made pursuant to Proposal B82727 (exhibit “P2”, see para 105 above).  It was drafted by Chen’s solicitors and Vivien was also represented by her own solicitors[49].  Recital (b) of this document stated that the transfer of the CHL shares by Vivien to Chen was to “re-vest” in the latter.  Such terminology is consistent with a transfer back to the beneficial shareholder.

115.  I have been referred by Mr Yu to Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802D, a sham refers to things done which are intended “to give to third parties or the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create”.

116.  An example of a sham can be found in the case of Midland Bank Plc v Wyatt [1997] 1 BCLC 242.  There, the defendant made a declaration of trust giving his interest in the matrimonial home to his wife and his two daughters.  However, it was held that the declaration was a sham since the defendant never intended to part with the beneficial interest and acted as though he had not done so.

117.  The evidence here is compelling.  In addition to the documents, it is uncontroversial that subsequent to the CHL exercise, Chen had continued to exercise control over his Hong Kong assets, and indeed had distributed them to his family in accordance with his wishes.  Apart from the evidence, I am unable to see any reason to believe that Chen would have intended to favour Vivien over Angela in the distribution of his assets (which would be the case if the CHL exercise were genuine).  In the premises, I have no doubt that at all material times Vivien was holding the shares or assets of CHL on trust for her father.  I agree with Mr Yu that the CHL exercise was a sham to “avoid” potential estate duty. 

Proposal A

118.  It is a short document in simple terms.  It was drafted by Stephen who confirmed in evidence that in drafting that document he had faithfully followed Chen’s instructions and not left out anything of importance.   It stated as follows :

“建議書A58826及B70699批准分配給陳太、陳慧芳及陳慧慧每人45億港元資產的安排現予以取消，分配金額改為陳太、陳慧芳及陳慧慧每人30億港元，而分配方法亦更改為分配給陳慧芳及陳慧慧每人45億港元資產，惟陳慧芳及陳慧慧每人會將她所分得的45億港元資產其中15億港元資產送給陳太。”

[emphasis added]

119.  The meaning of Proposal A is plain and obvious. Vivien had to give to her mother 1/3 of what she received from her father. With respect to the diligence and ingenuity of Mr Ho’s team, there is no answer to the plain meaning of the document, and I am unable to find any merit in any of the other arguments advanced to detract from such plain meaning.  In particular, there is nothing in the factual matrix which militates against the plain meaning.  

120.  In her pleading, Vivien contends that “the only true and proper construction of [Proposal A] is that ... [she] was to gift HK$1.5billion worth of assets to [Yang]”[50].  This is plainly a distorted reading of Proposal A.  Under cross-examination, and in the face of Proposal A, Vivien did not seek to defend her pleaded case.  Indeed, she said on Day 10 (MT Day 10/71:20 to 72:18) that if the court holds that the true construction of Proposal A (and the direction of Chen) is that she would have to give 1/3 of what she received to Yang, she would do so.  However, when the court tried to clarify with her whether there remained any disagreement on her mother’s entitlement under Proposal A, Vivien again resorted to long ambiguous answer to avoid the question[51]. 

121.  I shall deal with the main arguments advanced on behalf of Vivien.  There is a new argument in her final submissions based on an alleged subjective understanding of Proposal A on the part of herself and Yang.  It is not part of the Agreed List of Issue which, according to the directions of this court, is binding on the parties.  Further, I am unable to see any proper factual support for the proposition that, despite the clear meaning of Proposal A, it was understood differently.

122.  There is an argument that Yang’s Proposals constituted an important part of factual matrix such that Proposal A would have to be construed in light of the same.  I am unable to see any real substance in the argument for the following reasons :

(1)   The suggestion that Yang’s entitlement under Proposal A was conditional upon her distributing the assets to be received from her husband to the daughters is contrary to the wordings of that document. Indeed, Stephen had confirmed that Chen imposed no condition under Proposal A;

(2)   I accept that Chen would not like to see his wife’s estate exposed to estate duties.  It can be seen from CB/31 dated 15 October 2003 that there was a suggestion of an equal distribution of 1/3 each to Yang, Vivien and Angela, and Yang’s share was to be held by Vivien and Angela on her behalf for estate duty purposes.  However, I have little doubt that Chen respected his wife wishes and was not minded to dictate how his wife was to dispose of her assets.  This is evident from the fact that the suggestion in CB/31 was not adopted in Proposal A.  See also D/32 which evidenced that Chen would speak to his wife on the distribution of his assets;

(3)   Further, Chen’s respect for his wife’s wishes can be seen from CB/35 where he directed that Yang would have the first pick over the Group A and Group B Properties (see para 41 above).  Furthermore, in CB/43 it was recorded that Yang’s consent was required for the cancellation of Proposal 58826 under which she was entitled to be distributed HK$4.5b worth of assets (see para 40 above);

(4)   When Proposal A was made, Proposal Y1 was substantially cancelled by Proposals Y2 and Y3;

(5)   It is clear that from at least the beginning of 2004, Chen was treating his wife and 2 daughters with parity in the distribution of assets (see CB/32).

123.  There is a suggestion by Vivien, echoed by Stephen and Daniel, that the fact that when Proposal A was made she had already received HK$3.9b of assets (via her company, Crosby Investment Holdings Inc (“Crosby”)) and that somehow presented a difficulty in her distributing 1/3 of what she received to her mother.  I have already touched upon this point above.  It is a bad point for the following reasons :

(1)   First and foremost, according to the Proposal A both daughters were required to distribute 1/3 of what she had received to Yang.  There is no room for ambiguity; 

(2)   Stephen’s evidence is that Chen insisted on the wording of Proposal A despite having been reminded by him that substantial assets had already been distributed to the daughters[52];

(3)   It is clear from the evidence that all the assets distributed to either Vivien or Angela would have to be taken into account when Chen made the final decision on the distribution: see D/119, D/121 (both signed by Vivien) and D/134;

(4)   There can be no inhibition on sharing the assets with Yang.  There is no good reason to doubt that Yang would have been happy to accept cash equivalent or transfer of assets from her daughters;

(5)   As pointed out by Mr Yu, Vivien had obtained another HK$0.523b worth of assets under Proposal A.  I am unable to see how she can argue that she would obtain the benefit under that Proposal but not to have to share it with her mother in accordance with its terms.

124.  I next consider Yang’s causes of action based on breach of fiduciary duties, family arrangement and undue influence.  I agree with Mr Yu that: (a) there is substantial overlap between fiduciary duty and undue influence and (b) these causes of action can be established based on the undisputed facts and documents as well as the evidence of Vivien, ie, without the evidence of Yang.

Breach of fiduciary duties

125.  The law on the imposition of fiduciary duties was reviewed recently by the CFA in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, §§60-69, per Ribeiro PJ.  With gratitude, I adopt with modifications Mr Yu’s summary of the principles laid out by the CFA as follows :

(1)   Even though the parties’ relationship may be generally non-fiduciary in nature, it is possible for particular obligations to import fiduciary duties and equitable remedies: §§56-58;

(2)   The authorities show that a person assumes fiduciary duties “where he undertakes an obligation to act in the interests of another”: §§60-63;

(3)   Fiduciary duties may fall within 2 broad categories: where the relationship is one of agency, and where there is a relationship of ascendancy or influence by one party over another, or dependency or trust on the part of that other party: §64;

(4)   An obvious example of the “agency” type of situation involves the case “where a person receives money or other property for and on behalf of or as trustee of another person”: §65;

(5)   The ascendency type of cases has been described as “power-dependency relationships” involving a need for “the protection of one party against abuse of power by another”: §§66-68.

126.  Mr Yu advanced his case on fiduciary duty on 4 bases: (a) there was an agency type relationship between Vivien and Yang in that the former received properties with an obligation to transfer a part thereof to the latter; (b) Vivien was in a position of ascendency and influence over Yang; (c) Vivien received and retained very substantial properties on condition that she would give 1/3 of it to Madam Yang (based on de Bruyne v de Bruyne [2010] 2 FCR 251); and (d) Vivien, through CHL (which was a sham) or Crosby (who was a mere nominee) held 1/3 of the shares in the relevant special purpose property-holding vehicles on trust for Chen, and at his direction she then held such shares on trust for Yang, and thereby owed fiduciary duties to her.

Agency type relationship

127.  In my view, this is a very clear case of fiduciary relationship.  On any view, Vivien had an obligation to Yang under Proposal A to transfer 1/3 of what had been given to her.  This must be analogous to an agency type relationship.  In other words, she received 1/3 of the assets as agent on behalf of her mother.  See Libertarian, §§60-63 and 65.

128.  I do not accept Vivien’s argument that part of the properties (amounting to about HK$3.9b: see CB/83) was already received by her absolutely prior to the execution of Proposal A.  Apart from the point made in para 123(3) above, this does not affect the agency character of the transaction.  Vivien accepts that she agreed to the terms of Proposal A and would transfer HK$1.5b assets to Yang[53].  Upon such agreement, she would hold 1/3 of the properties she received and going to receive (see Proposal B) as agent to transfer the same to Yang.

129.  Moreover, it is not Vivien’s case that because she had received HK$3.9b she did not have to share it with her mother.  On her case, the issue is how much she had to give her mother.   

Ascendency or trust and confidence relationship

130.  An objective assessment of the evidence in this case leaves little doubt that there was a relationship of ascendency or trust and confidence between Yang and Vivien.  See Libertarian, §§64, 66-68; Breen v Williams 186 CLR 71 at 82-3; and Johnson v Buttress 56 CLR 113 at 119.

131.  Yang was 80 years old in 2004[54] and not in the best of health[55].  On any view, she was not highly educated, and it was the most natural thing for her to rely and trust her daughters on important financial matters.  It can be seen from D/163 that Yang had a discussion with both her daughters before deciding on Group A Properties.  See also the discussion below on Yang accepting the ideas suggested to her by Vivien or her staff in respect of her Proposals.

132.  Daniel, who had been looking after Yang’s financial affairs for many years, said that Yang lacked “understanding of how modern commercial structures and finance works operate”, leaving her “vulnerable to manipulation”[56].  Indeed, the evidence is that the idea about giving Yang the appreciation in respect of 80 RR did not come from her.  She simply agreed to what was proposed to her (see paras 164 to 169 below). 

133.  Vivien accepted in her evidence that Yang trusted her in 2003/2004, and in particular she trusted her on how to arrange for the distribution of the HK$1.5b[57].  This is in agreement with Daniel’s evidence[58]. 

134.  Yang’s trust in Vivien is also demonstrated by her entrusting the shares in Timford, the management of its assets and Foundation B to Vivien (and her family in the case of Foundation B). 

135.  Vivien relies heavily on an affirmation filed by Yang in Chen’s mental health proceedings to try to show that her mother was a sophisticated person despite having received primary school education (FDB/62, §§5-7).  I do not believe that such evidence can detract from the picture set out above.  At the highest, the affirmation referred to the younger days of Yang, some 40 or 50 years prior to 2004.   

de Bruyne – conditional receipt and retention of property

136.  Relying on the English CA case of de Bruyne, Mr Yu contends that fiduciary obligations can arise amongst family members where one member of the family received property on the understanding that the property was to be held for the benefit of another member of the family.

137.  The facts of that case were complex.  In summary, a family agreed, as recorded in a written agreement, to terminate the family trust and convey shares in a company to the husband “for the benefit of [his] five children”.  On the receipt of the shares by the husband, they were immediately transferred to the wife as nominee.  The shares were never placed into any form of express trust for the children.  The wife claimed in subsequent divorce proceedings that any promise which the husband might have given was no more than a statement of intention and did not impose on him any kind of fiduciary obligation in respect of the trust assets whether on an express or constructive basis (see §§10-12, 19-20 of the judgment).

138.  The CA held that the children could not be regarded as privy to any common intention or understanding in a real way which might support a common intention constructive trust (§48).  However, Patten LJ found that a constructive trust existed.  He referred to the examples of secret trusts and mutual wills and said at §51 :

“There are, however, a number of situations in which equity will hold the transferee of property to the terms upon which it was acquired by imposing a constructive trust to that effect. These cases do not depend on some form of detrimental reliance in order to re-balance the equities between competing claimants for the property. They concentrate instead on the circumstances in which the transferee came to acquire the property in order to provide the justification for the imposition of a trust. ... In neither case [of secret trusts and mutual wills] does the intended beneficiary rely in any sense on the agreement (he may not even be aware of it) but, in both cases, equity will regard it as against conscience for the owner of the property to deny the terms upon which he received it. It is not necessary in such cases to show that the property was acquired by actual fraud (although the principle would apply equally in such cases). The concept of fraud in equity is much wider and can extend to unconscionable or inequitable conduct in the form of a denial or refusal to carry out the agreement to hold the property for the benefit of the third party which was the only basis upon which the property was transferred. This is sufficient in itself to create the fiduciary obligation and to require the imposition of a constructive trust. The principle is a broad one and applies as much to inter vivos transactions as it does to wills: see Rochefoucauld v Boustead [1897] 1 Ch 196; Bannister v Bannister [1948] 2 All ER 133.”

[emphasis added]

139.  Accordingly it was held that, because the shares were transferred to the husband on the condition that they would be placed on trust for the children, the husband was not free to deal with the shares as his own, and a constructive trust was imposed (§§52-54).

140.  de Bruyne is characterised in Lewin on Trusts, 19^th edn, §7-019 as an example of a “fiduciary duty trust”, a constructive trust arising where the defendant has voluntarily undertaken fiduciary duties.  In such cases, the circumstances in which the defendant obtained control are said to make it unconscionable for the defendant thereafter to assert a beneficial interest or exclusive interest in the property.  The result is that a fiduciary obligation was created and the defendant appointed a constructive trustee for the beneficiaries. 

141.  de Bruyne was applied in AM v SS [2014] EWHC 2287 (Fam) where a property was purchased with funds from the father, but in the name of the son, for the benefit of the daughter.  Coleridge J held that the case “precisely fits the analysis in de Bruyne”, and given the circumstances in which the property was placed in the son’s name it would be “wholly unconscionable” to allow the son to assert that it was his property beneficially (§§24-27). 

142.  I agree with Mr Yu that on the facts of the present case, there can be no doubt that it would be “wholly unconscionable” to allow Vivien to retain all the assets she received from her father without regard to the condition imposed on her by Proposal A, namely, to give 1/3 of the assets she received to her mother.

143.  There are 2 arguments advanced by Vivien here. Firstly, it is contended that because she had already received HK$3.9b’s worth of assets as absolute owner, she did not receive the HK$4.5b under Proposal A.

144.  I am unable to agree.  The analysis set out in para 123 above applies equally here.  It cannot be accepted that Vivien was the absolute owner of the HK$3.9b of assets.  She accepted that the assets received would have to be taken into account when it came to final reckoning, ie, when Chen finally decided on the distribution of his assets[59].  Both Stephen and Daniel said that such was Chen’s intention, which was agreed by Vivien[60].  It is indeed common ground that Vivien would abide by the decisions of her father.  In the premises, the properties must have been distributed to Vivien on a provisional basis, subject to the final determination of the inter vivo distributions by Chen. 

145.  Under the terms of Proposal A, Vivien had to distribute to Yang 1/3 of the HK$4.5b she “received”.  That must include the HK$3.9b already distributed to her.  Therefore, Vivien’s obligations under Proposal A must cover the entire HK$4.5b.  She had agreed to Proposal A, and took advantage of further distribution to her of HK$0.523b.  It would be unconscionable for her to deny the terms on which she was allowed to retain and distributed further properties. 

146.  Secondly, Vivien argues that there was no certainty of subject matter (trust property) because the direction for the gifting of assets representing 1/3 in value did not identify any particular property or share to form the subject matter of the transfer (citing In re Goldcorp Exchange Ltd [1995] 1 AC 74 at 91D-G).  I agree with Mr Yu that the underlying principle in de Bruyne is much wider – it is based on the assumption of fiduciary duties upon receiving properties upon certain terms, and the unconscionability of the recipient denying those terms. It does not depend on the establishing of a trust.  See Lewin on Trusts quoted above.  Further, given Vivien’s acceptance that she has to transfer such assets to her mother in accordance with the true construction of Proposal A, this argument would allow her to evade her obligations under the Proposal.  I do not believe that equity would allow Vivien to, in effect, cheat her mother with technical legal arguments. 

147.  Furthermore, as stated in para 54(2) above, the properties distributed to Vivien were recorded in C/83 to the cents.  The HK$3.9b assets were transferred by way of shares in the property holding companies. It is common ground that references in Proposals to transfer of landed properties were shorthand for transfer of shares in direct or indirect holding companies[61].  The balance of assets making up the HK$4.5b (HK$0.523b) was made up of 80 RR units as per the A List and B List attached to Proposal B.  Most probably, these were transferred to Crosby from one of the property holding companies owned by CHL.  In the circumstances, I am unable to see any real uncertainty of subject matter.

148.  On the law, Mr Yu submitted that in the case of identical and interchangeable assets, eg, shares in a company, a declaration of trust over a specific portion, say 1/3, would be sufficiently certain in its subject matter: Lewin on Trusts, §§3-006 & 3-007.  As explained by Briggs J in Re Lehman Brothers International (Europe) [2010] EWHC 2914 (Ch) at §225(iii) :

“A trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary’s proportionate share of it is not itself uncertain.”

149.  This is demonstrated by the case of Hunter v Moss [1994] 1 WLR 452.  There the defendant was the registered owner of 950 shares of a company.  He made an oral declaration of trust constituting himself trustee for the plaintiff of 5% of the issued share capital (of 1000 shares). The defendant’s argument that the trust failed for uncertainty of the subject matter was rejected.  Dillon LJ held that in the case of a declaration of trust of personalty (here shares), the requirement of certainty of subject matter did not necessarily entail segregation of the property which was to form the subject matter of the trust; and that the declaration of trust by the defendant was sufficiently certain as to subject matter, since the shares held by the defendant were of such a nature as to be indistinguishable from each other and were all capable of satisfying the trust without identifying any particular 50 shares: see headnotes; 457B, G-H and 458A-C.

150.  Accordingly, I also reject this argument of Vivien.

Direction by Chen as beneficial owner

151.  Mr Yu submitted that the directions by Chen to Vivien as to distribution of assets amounted to directions by him as beneficial owner to his trustee, and this provides a further basis for imposition of fiduciary obligations on Vivien.  I agree.

152.  As explained by Sargant J in In re Chrimes [1917] 1 Ch 30 at 36-37 :

“Now it is well established that in the case of an equitable interest outstanding in trustees or other holders a voluntary direction by the owner to the trustees or holders to hold the whole or part of that interest upon trust for a third person operates as a complete and effectual transfer of the interest to which the direction extends...”.

153.  I disagree with the criticism that this cause of action has not been pleaded.  It is included in para 1 of the Joint List of Agreed Issues. 

154.  Vivien relies on the separate legal entities between a company and its shareholders to try to defeat this cause of action in that the property holding companies or the underlying assets were only indirectly held by Vivien through CHL.  I agree with Mr Yu’s analysis that CHL was merely a nominee or corporate vehicle for carrying out a tax scheme whereby Chen purportedly sold his shares in the property holding companies to CHL which was wholly owned by Vivien.  Once this court holds that CHL is a sham, it can be ignored, and Vivien would hold the shares of the property holding companies on trust for Chen. 

155.  Further, by virtue of Vivien’s shareholding in CHL, which she held on trust, she would be in complete control of all property holding companies under CHL, and in the position to procure the transfer of the shares or the underlying properties.  In other words, she held the shares of CHL, together with the right as shareholder to control the underlying companies and thus their properties, as trustee. 

156.  The picture did not change after the transfers of shares in the property holding companies to Crosby.  Crosby was merely a nominee of Vivien.  Vivien still held the shares in the property holding companies as trustee, and should follow Chen’s directions under Proposal A.

Breach of fiduciary duties

157.  Yang relies on the fair dealing rule, the law on which is trite.  Under the rule, where a fiduciary deals with his principal, he must prove that: (a) the transaction is fair or that the fiduciary gave full value; and (b) he had made full disclosure of all material facts.  It was held in the well-known authority of Bristol and West Building Society v Mothew [1998] Ch 1 at 18D-E, per Millett LJ (as he then was) :

“where the fiduciary deals with his principal... he must prove affirmatively that the transaction is fair and that in the course of negotiations he made full disclosure of all facts material to the transaction. Even inadvertent failure to disclose will entitle the principal to rescind the transaction.”

158.  It is equally trite that the burden of proof on these matters is firmly on the fiduciary.  Mr Ho has declined to accept that the burden of proof in question is on Vivien but I can find no answer in his closing submissions to this well-established proposition.

159.  I have been referred to many authorities on the nature and extent of the duties of a fiduciary[62].  I do not believe that it is necessary to set them out.  In my view, the breach of fiduciary duties on Vivien’s part is clear, and to which there is no valid answer.

160.  I agree with Mr Yu that Vivien had breached her duties on 2 key respects: (a) she failed to disclose to Yang the true market value of the properties distributed to her; and (b) she failed to pay or account to Yang the full market value of her 1/3 entitlement.  Vivien acted under a conflict of interest, and she had made unauthorised profits in doing so.

161.  Vivien is plainly guilty of failing to disclose to her mother very material information.  On her own evidence :

(1)   At the time of Proposal A, she knew that the properties distributed or to be distributed to her were worth around HK$7-8b[63];

(2)   She never told Yang that this was the case[64].  I should mention that Vivien’s evidence is quite unsatisfactory as to what she told her mother[65].  I believe that the vagueness of her evidence reflects the fact that this court has not been told the truth.  However, Vivien’s evidence is that she only mentioned the appreciation in 80 RR units[66], which was 20-30%[67].  Later, she said that she told her mother that the assets she received had appreciated by about 20 odd%, which would be misleading[68].  Yet later in her evidence, she claimed that Yang knew that the property market had appreciated by 30%-40%[69].

162.  As regards the argument that Yang would have known that the market had rebounded after the recovery from SARS, I do not see this as a proper answer to Vivien’s failure to make adequate disclosure to her mother.  Taking the point at the highest, there is no reason to believe that the 80 year old lady would have anything more than a general notion that the market had recovered.  It is fanciful to suggest that she would have known that the HK$4.5b assets had become HK$7-8b, bearing in mind especially that there was a substantial amount of assets spreading across different sectors of the market.

163.  In respect of the argument that Yang had agreed to give away most of her share of the distribution to Vivien, her children and charity, I agree with Mr Yu that this is no answer to Vivien’s breach of fiduciary duties.  Vivien and her children stood to benefit from her mother’s distributions, it is elementary for her as a fiduciary to make full disclosure to her mother so that she would be in a position to make informed decisions. In Brickenden v London Loan & Savings Co [1934] 3 DLR 465, it was held at 469 that :

“When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent’s action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.”

164.  Finally, I should say a few words about the inflation adjustment in respect of 80 RR which was given to Yang.  Firstly, the evidence is quite clear that the idea did not come from Yang.  This sits poorly with Vivien’s evidence that her mother did not want the appreciation over the other properties but only asked to be paid that in respect of 80 RR[70].

165.  The documents show that the idea was discussed during the meeting on 8 July 2004 (CB/44).  Daniel confirmed that after the discussion Vivien rang her mother and suggested the idea to her[71] (which is consistent with Alan’s record) :

“Q. 其實當時那個情況，就是一幫人開了會，談了一些事了，然後就陳慧慧用電話打給陳太，就問「媽媽，這樣做好不好啊？」陳太就說「好」，情況就是這樣，是不是？

A. 應該是。”

166.  The idea was embodied in Proposal Y1 which was written by Stephen.  It is evident from the Proposal that the scheme was complicated (the 80 RR units would be injected into the trust at 15 July 2004 valuation but the appreciation between 31 March 2004 and 15 July 2004 would be paid to Yang).  Stephen was unable to explain the “logic” of it.  Importantly, Daniel, who personally dealt with Yang on her financial matters, was clear that the old lady could not have come up with the “rather complicated” mechanism for calculating appreciation in that Proposal[72].

167.  Further, Daniel said that the mechanisms must have been the idea of Stephen or Vivien herself[73].

168.  Under the pressure of cross-examination, Stephen eventually agreed that the complicated mechanism to account for appreciation contained in Yang’s Proposals was “possibly” not Yang’s own idea, but was agreed to by her later.  He said that it was either the staff or Vivien who came up with the mechanism[74]. 

169.  In light of Stephen’s evidence, and the fact that he was unable to explain the “logic” of the appreciation mechanism, the balance of the evidence is that the idea came from Vivien.  It stands to reason given the fact that she stood to gain from it.  By using the appreciated value for purpose of payment to the trust, Vivien would minimise her obligation.  At the same time, she knew or expected that the appreciation given to her mother would eventually fall back into her hands by way of her estate. 

Family arrangement

170.  It is Yang’s case that Proposal A is a binding family arrangement.  Alternatively, Vivien is estopped by convention from asserting that it is not binding. 

171.  A family arrangement is a specie of contract. The court has been provided with a body of authorities on this area of the law[75].  I need only refer to some of it.

172.  In Halsbury’s Laws of England, 5th edn, Vol 91, §903, the following definition for family arrangement can be found :

“A family arrangement is an agreement between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or by saving its honour.”

173.  Recently, the Singaporean Court of Appeal reviewed the law on family arrangements in Kuek Siang Wei v Kuek Siew Chew [2015] 5 SLR 357.

174.  Giving the judgment of the Court, Menon CJ provided an outline on what, broadly stated, constitutes a family arrangement. It is “an agreement between members of the same family which is intended to confer some benefit upon the family.  Often, such agreements involve one or more of the parties to the agreement putting the greater interest of the family before their own: §§45 and 66(a).

175.  Four general (and non-exhaustive) categories of agreements which have been accepted as conferring benefit on the family were identified.  The 1^st and 4^th categories are relevant for the present purpose.

176.  The 1^st category is agreements between family members, pursuant to which one or more of them agrees to compromise doubtful or disputed rights so as to preserve peace and harmony within the family, which would be disrupted if the disputes were litigated: §§47-50 and 66(b)(i).  See also Williams v Williams (1866) LR 2 Ch App 294 at 304.

177.  The 4^th category is agreements entered into between the surviving descendants of a deceased person to give effect to testamentary wishes which the deceased expressed before his death in a manner that is not and cannot take effect as a will: §§55-57 and 66(b)(iv). 

178.  Mr Yu submitted that Proposal A was an agreement to preserve the family peace following the CHL dispute.  This appears to be accepted by Vivien[76].  Further, it is clear from Vivien’s evidence[77] that there was tension between the sisters over CHL, eg, she complained that she was accused to have stolen from her father.  There can be little doubt that the parents were doing what they could to maintain the peace in the small family.

179.  However, Vivien argues that the Disputed Agreements (Proposals Y3 and Y5) did not amount to family arrangement. Further, it is disputed there was any intention to create legal relationship or consideration to support a binding family arrangement.

The Disputed Agreements

180.  I agree with Mr Yu that the Disputed Agreements constituted a family arrangement for 2 reasons: (a) they were part and parcel of the family arrangement under Proposals A and B, being an arrangement to implement Proposals A and B; and (b) they were part and parcel of the arrangement made for the benefit of family peace and harmony and were for the benefit of the family as a whole.

181.  These submissions are properly justified. Proposal Y3 (it should be read with Proposal Y1) was made in anticipation of Yang getting HK$1.5b of assets from her husband via Vivien.  It sought to further distribute the assets which would be received by Yang from Vivien pursuant to, eventually, Proposal A.  As analysed by Mr Yu, Proposal A provided the broad structure of distribution intended by Chen, whereas Proposal B and Proposal Y5 filled out the details.  Proposals Y3 and Y5 should therefore be seen as part of the overall exercise, and also part of the arrangement for maintaining the family peace.

182.  I should add that the arrangements embodied in the Disputed Agreements must have met with Vivien’s satisfaction.  Proposal Y3 shows that Vivien was keen to capture the distributions to herself and her family.  The evidence before the court, as noted in para 109 above, is that Vivien was obsessed about not getting less than her sister.  I have little doubt that the Disputed Agreements served to keep her happy and thus maintained the family peace.   

183.  Mr Yu also submitted that the Disputed Agreements gave effect to Chen’s wishes on the distribution of his assets. They can properly be treated as being analogous to category 4 of family arrangements under Kuek Siang Wei, ie, an agreement between surviving descendants to give effect to the informal wishes of the deceased.  The only difference here is that the Agreements were made and took effect during Chen’s lifetime.  A similar agreement during the lifetime of the father was upheld as a family arrangement in Houghton v Lees (1855) 1 Jur NS 862.  I agree with the submission.

Intention to create legal relationship

184.  Mr Ho relied on Jones v Padavatton [1969] 1 WLR 328 at 332H to 333A for the proposition that there is in law a rebuttable presumption that agreements between family members are not intended to have legal effect. 

185.  However, in Parker v Clark [1960] 1 WLR 286 at 293 Devlin J (as he then was) explained that the question must “depend on the intention of the parties, to be inferred from the language they use and from the circumstances in which they use it.”  Evidence of the subsequent conduct of the parties is relevant: Jones, 336H. 

186.  In my view, the evidence in this case leaves little room for argument that Proposals A and B as well as the Disputed Agreements were all intended to have legal effect unless and until they were revoked.  These Proposals were carefully drafted with the involvement of the senior staff, eg, the assets were calculated to the cents.  They had to be signed by Chen or Yang to take effect (hence the lack of effect of Proposal Y4).  Any cancellation would be formally recorded by another Proposal, eg, Proposal A recorded the cancellation of Proposals 58826 and 70699; and Proposal Y1 was cancelled by Y2 and Y3.  It should also be noted that, as recorded in CB/43, Yang’s consent had to be obtained for the cancellation of Proposal 58826 under which she was entitled to HK$4.5b of assets. 

187.  The subject matters of these Proposals were the distribution of billions of assets.  Clearly, the distribution exercise could lead to litigations between the sisters.  Indeed, lawyers were instructed by them (see letter of Messrs F Zimmern & Co dated 14 June 2004 at D/185-188).  Moreover, the reason why Vivien requested her father to execute a Deed of Indemnity (see para 114(7) above) in her favour was that she was mindful that Angela might sue her based on Proposal B69291 dated 12 April 2003[78], under which Vivien agreed to transfer 50% of the shares in CHL to her sister, and both of them had signed on the Proposal. 

188.  Furthermore, it is common ground that the Chen’s Proposals were abided by his family.  Vivien agreed in evidence that there was a binding obligation under Proposal A requiring her to transfer HK$1.5b assets to Yang[79].  She also accepted that the Proposals dealing with Chen’s distribution of assets had legal effect and were intended to be legally binding, which explained her concern about a potential claim against her by Angela[80].

Consideration

189.  In respect of consideration for the family arrangement, firstly, it has to be remembered that family arrangement is not a commercial transaction and it would be wrong to approach it as such.  This is consonant with the law. 

190.  In Williams v Williams (1867) 2 Ch App 294, a father died having made a will which provided for the estate to be given to his 2 sons equally, subject to certain provisions for his wife.  But the will was incomplete being without witnesses, and not admitted to probate.  It appears that under intestacy law, the elder son became entitled to a much larger portion of the estate of his father.  However, the 2 brothers then treated the properties of his father as being owned by them jointly and equally.  Neither had ever asserted sole ownership over any property.  They also continued in partnership the father’s business.  The widow did not assert her rights over any property. 

191.  The partnership was dissolved 20 years later, and the executors of the younger brother filed a bill asking for equal division of the father’s properties.  It was held that there was a family arrangement for equal distribution between the brothers even though there were no doubtful right to be compromised and no dispute between the brothers.  Lord Chelmsford LC said at pg 300 :

“So far as the motives which led the Appellant to admit his brother to an equal share of their father’s property are concerned, this case differs from those cases of family arrangement which have formerly been the subject of decision. There was here no doubtful right to be compromised, no dispute between the brothers which was to be set at rest, no honour of the family involved; the Appellant was merely prompted by respect for his father’s intentions and by his affection for his brother, both most excellent and praiseworthy motives, but scarcely sufficient to constitute such a consideration as would convert an act of kindness into a binding engagement. If, therefore, there had been no consideration for the Appellant’s promise to share the freehold property with his brother, I should have been disposed to hold that he could not be bound by it. But it appears to me that there is quite sufficient consideration to prevent its being a mere voluntary agreement, and that the Court will not be disposed to scan with much nicety the amount of the consideration.”

[emphasis added]

192.  The Court found that the younger brother had provided consideration for the arrangement in that he brought his property (though of trifling value) into the common pool, as well as leaving his share of the stock in trade in the partnership.  Further, the widow was a party to the arrangement, and the relinquishment of her rights was sufficient consideration to make the family arrangement binding: pgs 300-301.

193.  Williams v Williams was regarded in Kuek Siang Wei (§§55-57) as an example of the 4^th category of family arrangements (see para 177 above), because it was to implement the father’s wishes. 

194.  Echoing Williams v Williams, the Court in Kuek Siang Wei (§§60 and 66(c)(ii)) held that it would not scrutinise the pecuniary worth of the consideration too closely.

195.  In Pek Nam Kee v Peh Lam Kong [1996] 1 SLR 75, at 102H, Prakash J referred to a low hurdle for consideration :

“Adequacy of consideration is not usually an issue since in the nature of such an arrangement founded on sentiment rather than commerce, only part of the consideration is value, the other part being love and affection. If, however, the inadequacy of the consideration is so gross as to lead the court to the conclusion that a party to the arrangement either did not understand what he was doing or was the victim of some imposition, the court can set aside the arrangement.”

196.  I have also been referred by Mr Yu to authorities which show that an agreement between persons who have expectations of receiving a gift from a third person to share the same amongst themselves is a valid agreement supported by good consideration: see Beckley v Newland (1723) 2 P WMS 182; Houghton v Lees (1854) 1 Jur NS 862; Higgins v Hill (1887) 56 LT 426.

197.  I need only refer to the last of those cases. In Higgins v Hill, during the lifetime of a testator, his brother and the brother’s 2 daughters entered into an arrangement whereby the brother agreed to give up his potential entitlement under the testator’s will and his 2 daughters agree to grant him an annuity for life from the assets that the testator would bequeath to them.  Chitty J, relying on Beckley v Newland, held that an agreement between persons who are probable objects of the bounty of a testator that they will come to an arrangement between themselves as to what property they will respectively take under the will is an agreement for value, and no objection can be taken: headnotes and pg 430.

198.  I agree with Mr Yu’s analysis that the position of an expectant legatee under a will (in the cases mentioned in para 196 above) is no different from an expectant donee.  The will only takes effect upon the death of the testator (and may be revoked in the meantime), and until that occurs, the expectant legatee has no legal entitlement to any distribution. The consideration from each party would be the giving up of their expectant bounty from the testator.  This means that good consideration does not require the giving up of a legal entitlement.

199.  I have no difficulty finding that Yang had provided consideration for the family arrangement, bearing in mind especially the low threshold.  Yang’s agreement to distribute most of the assets she was to receive from Vivien to her and her children clearly in my view amounted to consideration making the family arrangement binding on Vivien. 

200.  In para 186 above, I have alluded to the fact that Proposals 58826 and 70699 were cancelled by Proposal A.  Under those cancelled Proposals, Yang was entitled to be distributed HK$4.5b worth of assets and that she had chosen the Group A Properties in accordance with 70699 (see paras 40 to 42 above).  Her consent to the cancellation of 58826 was sought (and no doubt obtained) before Chen decided on Proposal A (see CB/43).  In CB/43, it was also recorded that the daughters were required to agree to gifting their mother HK$1.5b.  Proposal A therefore involved changes in Yang’s entitlements in return for Vivien’s obligation to give her 1/3 of the assets distributed and to be distributed to her.  It should also be noted that 80 RR was originally amongst the Group A Properties, it (or a substantial part thereof) was subsequently transferred to Vivien (or Crosby) under Proposal B. As recorded in that Proposal, the transfer was made with Yang’s consent.  There is clearly good consideration. 

Estoppel by convention

201.  There is a fall back argument by Yang that even if Proposals A and B did not amount to valid and binding family arrangements in law, an estoppel by convention has arisen to preclude Vivien from denying that they were binding in law.  I propose to deal with this argument briefly.

202.  The required elements giving rise to an estoppel by convention were summarised by Au-Yeung J in Sealegend Holdings Ltd v China Taiping Insurance (HK) Co Ltd, HCAJ 95/2012, unrep, 24 Oct 2014, at §83 :

“(i) The parties must enter into some legal relationship on the basis of a shared assumption of fact or law;

(ii) The content of the common assumption must be sufficiently certain to enable the court to give effect to it;

(iii) The assumption must have been communicated between the parties and acted upon;

(iv) There must be an attempt by one party to depart from the common assumption which departure would be unjust; and

(v) The other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption.

See Unruh v Seeberger (2007) 10 HKCFAR 31, at §§133, 135, 138-139, 150 per Ribeiro PJ.”

203.  Apart from the common ground that the family members would abide by Chen’s decisions as recorded in his Proposals, there is ample evidence in this case (set out above) to infer that both Yang and Vivien had conducted themselves on the basis that Proposals A and B were binding. Yang had clearly acted upon the common assumption by entering into the Disputed Agreements (Proposal Y3 was made with the expectation of asset distribution which finally embodied in Proposal A), and it is unjust for Vivien to now say that she is not required to act in accordance with Proposal A.  The law estops her from denying that she is bound by the same. 

Duty of disclosure under family arrangement

204.  I am satisfied on the authorities relied upon by Yang[81] that there is a duty of disclosure under family arrangement.  As explained by Menon CJ in Kuek Siang Wei at §63 :

“Both the tendency to uphold family arrangements if they have been entered into fairly, as well as the readiness to invalidate them in the stated circumstances stem from the fact that family arrangements are agreements between members of the same family, and very often, the parties do not deal with each other on a commercial basis or at arm’s length. As Prakash J stated in Pek Nam Kee, such arrangements are often “founded on sentiment rather than commerce” (at [108]). The parties to a family arrangement may repose a certain degree of trust in the counterparties to the agreement. Additionally, since family arrangements are ostensibly for the greater good of the family, the parties may be more willing not to insist on their strict legal rights so that the family benefits as a whole. Given these circumstances, there is a duty on all the parties to a family arrangement to make full disclosure, before the arrangement is entered into, of all material facts known to them so that no party’s ignorance of the true state of affairs is taken advantage of.”

[emphasis added]

205.  I am unable to accept Mr Ho’s submission that the duty of disclosure under family arrangement is no longer required in modern time.  Firstly, I am unable to see any logic or proper reason why that is so. It was and remains sound policy to uphold and encourage the resolution of family matters within the family.  Family members do not deal with one another on commercial basis.  They must therefore act with fairness and openness.  Secondly, the submission is not properly supported by authority.   

206.  I have already dealt with Vivien’s failure to discharge her duty to disclose to her mother the true value of her 1/3 entitlement in the context of breach of fiduciary duties.  The same analysis must be applicable here notwithstanding the fact that the burden of proof here is on Yang.  Indeed, I agree with Mr Yu that the non-disclosure by Vivien is beyond dispute.

207.  Given Vivien’s breach of duty of full disclosure, it should follow that Yang is entitled to avoid (rescind) the Disputed Agreements.

Undue influence

208.  This cause of action overlaps with fiduciary duties. 

209.  The law is now well-settled.  As explained by Lord Nicholls in the well-known case of Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, §§6-7, the doctrine of undue influence targets the abuse of influence or persuasion with the use of unacceptable means.  In Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358, §34, Recorder Ma SC (as he then was) said that “it has all to do with informed consent”.

210.  Based on Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579, §34 (Lord Scott NPJ), the parties should, instead of relying on evidential presumption at trial, focus on whether the evidence justifies an inference that, on a balance of probabilities, the impugned transaction was procured by undue influence.

211.  I have also been referred to Hewett v First Plus Financial Group Plc [2010] 2 P&CR 374.  The main issue raised in that appeal was the extent to which non-disclosure by a husband when seeking to persuade his wife to join with him in a charge of their matrimonial home as security for his own debts might constitute misconduct on his part sufficient to afford the wife a defence of undue influence or misrepresentation, when that charge came to be enforced by the chargee: §2 (per Briggs J, sitting in the Court of Appeal).  The Court found that the concealment of his affair from his wife did amount to the exercise of undue influence against her, sufficient to vitiate the mortgage: §24.  It also found that the wife’s decision to participate in the charge was, as between herself and her husband, vitiated by his abuse of her trust: §37.

212.  The Court held that a finding of undue influence did not depend, as a necessary pre-requisite, upon a conclusion that the victim had no decision of her own, or that her will and intention had been completely overborne.  A conscious exercise of will could be vitiated by undue influence: §25.  The first question which had to be asked was whether the wife reposed a sufficient degree of trust and confidence in her husband to give rise to an obligation of fairness and candour owed to her: §29.  The second question was whether the fact that the husband was having an affair was something which his obligation of fairness and candour towards his wife required him to disclose: §31.  The question whether the affair was a material fact calling for disclosure is to be decided by an objective test: §35.  It was unnecessary to inquire whether the husband’s non-disclosure of his affair was innocent and inadvertent, or a deliberate concealment.  Either way, the result was a breach of his duty of fairness and candour: §36.

213.  Applying Hewett to the present case, the questions for determination are:

(1)   Whether Yang reposed a sufficient degree of trust and confidence in Vivien to give rise to an obligation of fairness and candour;

(2)   Whether Vivien failed to disclose all material facts;

(3)   Whether objectively the fact that Vivien was receiving assets worth $7-$8b was material.

214.  I have sufficiently dealt with Vivien’s failure to make full disclosure of material facts to her mother.  The 3^rd question is not open to doubt.

215.  I have also dealt with, in paras 130 to 135 above, the relationship of trust and confidence between Yang and Vivien.  I need only to add that there is no evidence that Yang was independently advised in connection with the Disputed Agreements.  The preponderance of probabilities is that she merely relied upon Vivien in reaching the Disputed Agreements. 

216.  Finally, in answer to Mr Ho’s argument that it is not shown that Yang would not have entered into the Disputed Agreements had the true facts been disclosed, my attention has been drawn to §34 of Hewett :

“Mr Lightfoot submitted that there was no evidence at trial that, had Mrs Hewett known of her husband’s affair in January 2004, she would have decided not to participate in the re-mortgage. That is in my judgment nothing to the point. It has never been part of the proof of undue influence that, but for the relevant abuse of trust, the impugned transaction would not have been entered into. The right to set aside the transaction arises not because, on a but for causation analysis, it would otherwise have been avoided, but because of the equitable wrong constituted by the abuse of confidence was part of the process by which the victim’s consent to it was obtained...”

[emphasis added]

217.  In the premises, I also uphold this cause of action.

Misrepresentation

218.  In his closing submissions, Mr Yu did not press the case based on unilateral mistake.  This is thus the only remaining cause of action.  I hope I can be forgiven for dealing with it briefly in light of the findings above and the length of this judgment.

219.  Yang’s case is that in or about July 2004, she had a meeting with Vivien at Vivien’s home to discuss about the distribution of the assets to be received by her under Stephen’s Proposed Scheme.  During the meeting, Vivien represented to her mother that :

(1)   One third of the market value of the properties allocated to Vivien was then in the region of HK$1.5b (referred to in the Amended Statement of Claim as the “1st Representation”); 

(2)   The ownership of the properties would require burdensome management (the “2nd Representation”);

(3)   The rental income would not be sufficient to cover the expenses incurred (the “3rd Representation”);

(4)   Vivien then offered to pay HK$1.5b in cash in lieu of distributing properties to Yang.

220.  After the meeting, Daniel (acting as Vivien’s agent and to her knowledge) represented to Yang that she would be paid all the appreciation attributed to her share in the properties (“Appreciation Representation”).

221.  Yang’s case is denied by both Vivien and Daniel.

222.  The obvious difficulty with this cause of action is the lack of viva voce evidence from Yang. 

Yang’s affirmations and witness statements

223.  There are 3 affirmations and 2 witness statements made by Yang.  The first affirmation was apparently made to confirm the contents of her Statement of Claim.  The other 2 were made to confirm the contents of the witness statements.  All the affirmations were made in the presence of a solicitor, Mr Lam, who was the first witness called on behalf of Yang (see paras 79 to 80 above). 

224.  Despite Mr Lam’s evidence, there are obvious issues with Yang’s paper evidence.  For instance, her evidence concerned complicated financial arrangements involving many documents.  Having suffered from a transient ischaemic attack and a stroke towards the end of 2010[82], a summary of her claim had to be used by Dr Wong for the purpose of assessing Yang’s mental capacity.  Further, Yang’s supplemental witness statement sought to answer those of a number of defence witnesses.  None of the documents or witness statements concerned was exhibited to Yang’s affirmations or witness statements.  Lam was unable to recall if those materials were shown or explained to Yang before she made her affirmations or witness statements. At most, he was only able to recall having been told by Ms Chen (Yang’s solicitor) that she had explained the witness statements of the defence to Yang. 

225.  However, I should say that I am not satisfied, as contended by Vivien, that Yang did not have the requisite mental capacity at the time of making of her paper evidence.  In this regard, I find it hard to prefer the evidence of Dr Chan over that of Dr Wong.  I bear in mind in particular that: (a) Dr Chan did not have the opportunity to examine Yang, and his evidence was confined to, as Mr Yu put it, a critique of Dr Wong’s evidence; and (b) there is no challenge to the evidence of Prof Cheung. 

226.  On the other hand, notwithstanding Mr Yu’s persuasive submissions that this court must examine Yang’s paper evidence in light of all the other evidence, I am unable to attach any real weight to the allegations of misrepresentation in the absence of Yang’s viva voce evidence for the following reasons :

(1)   In contrast with, eg, Yang’s evidence that she trusted her daughters on the transfer of assets under Proposal A[83], which is inherently true and consistent with Vivien’s evidence, there is no corroboration of the alleged misrepresentation;

(2)   It is an essential part of the adversarial system that an accuser’s evidence be tested in cross-examination.  For something based on mere allegation, this is a critical safeguard for the defendant;

(3)   The evaluation of allegations of misrepresentation depends much on what precisely was said and how it was understood by the representee.  In this case, it is quite difficult to discount the possibility, eg, that Vivien merely took advantage of the ignorance on the part of her mother as to what she was truly entitled to under Proposal A, as opposed to actively misleading her;

(4)   I cannot agree that Yang is discriminated because she is unable to give evidence.  It is part of the vicissitudes of life to be met with misfortune.  It is a fact that cases collapsed because, eg, the complainant had died.

227.  In this premises, I do not find this cause of action proven.

Yang’s alternative case

228.  For completeness, I uphold Yang’s alternative case in respect of Timford and the shortfall of donation to Foundation B (see para 6 above) in the event that I were wrong on my findings on breach of fiduciary duties, family arrangement and undue influence.  As analysed above, Timford clearly belongs to Yang beneficially.  I have little doubt that the Timford Declaration was created by Vivien to ensure that Timford’s assets would not be shared by Angela.  There is no dispute that Vivien has not fulfilled her donation obligation to Foundation B (see para 64 above).  More likely than not, her allegation about what her mother had told her to maintain parity with Angela is a concoction.  Even if that were true, by this action at the latest, her mother had countermanded the instruction.  There can be no defence to the claim. 

229.  The further alternative case (see para 7 above) has not been pressed.

Relief

230.  For the reasons given above, I must allow the rescission of the Disputed Agreements.  I see no real answer to the rescission.  Vivien’s pleading on laches and estoppel[84] is, with respect, nebulous and without substance.  In particular, I fail to see why it is inequitable to grant the relief of rescission[85].  Mr Yu accepted that Yang should give credit for the HK$300m she gave to Vivien’s children; the donation made via Vivien to Foundation B; and the money Yang had received from Timford (see para 97 above). 

231.  As a consequence of the rescission, Yang is entitled to have Proposal A specifically enforced.  Three alternative reliefs were advocated by Mr Yu in his oral submissions with the benefit of the calculations set out in Annex B of his written final submissions (“Annex B”): specific performance by way of, primarily, transfer of the properties still retained by Vivien; equitable compensation estimated at between HK$8.33b to HK$8.70b; and account for profit (strictly speaking, an account is a procedural devise with the aim to obtaining the profit which the fiduciary has derived from the use of trust money: see Libertarian, §§166-172).

232.  I am not attracted by the first option.  The properties retained by Vivien (currently valued in the region of HK$6.9b to HK$8b depending on what valuation evidence is to be accepted) constitute only part of what she received under Proposal A (the others had been sold).  I have little doubt that it was intended by Chen that his wife and Vivien would work out how they would divide the HK$4.5b assets under Proposal A, possibly with cash adjustment.  Therefore, I am reluctant to order a transfer which would result in Vivien losing the Peak properties, which she no doubt cherishes, when it is accepted that Yang would be adequately compensated with an award of money. 

233.  In respect of the third option (account for profit), I have expressed the court’s concern that it is likely to be a long and highly contentious process, and there is no evidence that it will lead to any substantial advantage over the equitable compensation.  In response, Mr Yu said that the plaintiff will decide whether to abandon this option after receiving the judgment of this court. 

234.  Turning to the equitable compensation, the computation of which has been set out in Annex B.  I deal firstly with a few legal points.  First, the date of assessment should be the date of judgment: see Libertarian, §91 and in AIB v Mark Redler [2014] 3 WLR 1367, §135, Lord Reed JSC held that the measure of equitable compensation should normally be “assessed at the date of trial, with the benefit of hindsight”. In this case, the parties have adopted 1 July 2016 as a proxy for the date of judgment. 

235.  In AIB, §31, Lord Toulson JSC said that: “the measure of compensation would be the difference between what the beneficiary had in fact received and the amount which he would have received but for the breach of trust”.

236.  On causation, Ribeiro PJ said in Libertarian, §93 :

“Where the plaintiff provides evidence of loss flowing from the relevant breach of duty, the onus lies on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss (or particular aspects of the loss) apparently flowing therefrom.”

237.  According to Annex B, the compensation comprises of the following :

(1)   In respect of the retained properties, Yang is entitled to (i) 1/3 of their value as at 1 July 2016; and (ii) 1/3 of the total rental received from 21 August 2004 (date of Proposal A) up to 30 June 2016;

(2)   For the sold properties, Yang is entitled to (i) 1/3 of the total proceeds; and (ii) 1/3 of the total rental received from 21 August 2004 up to the dates of disposal;

(3)   Pre-judgment interest on proceeds (item 2(i)) and rental income (items (1)(ii) and 2(ii)), at prime plus 1%, from the dates of receipts up to 1 July 2016;

(4)   Pre-judgment interest on the 3 sums above from 1 July 2016 to date of judgment.

238.  Subject to the set-off acknowledged by Mr Yu (see para 230 above), I agree with the proposed computation of equitable compensation.  The assessment reflects the fact that Yang was not given what she was entitled to under Proposal A.

239.  However, I need to resolve the difference between the experts on valuation.  The valuation issues are considerably simplified with the approach taken in Annex B.  Only the 2016 value of the retained properties is relevant (see Annex B(1), a copy of which is attached to this judgment as Annex I) :

(1)   The following properties are wholly retained by Vivien as at 1 July 2016: items 1, 2 and 3 as per Annex I (21 Coombe Road, 84 Peak Road, Interocean Court), item 16 (La Halcienda) and item 20 (80 RR);

(2)   The following are partially retained, with a ratio agreed between the experts as to the value of the retained units: item 9 (Nan Fung Commercial Centre), item 11 (Asia Trade Centre) and item 14 (Beauty Court);

(3)   Residual units of item 17 (“Fiori”) and item 18(ii) (“La Place de Victoria”) are retained.

240.  It can be seen from Annex I that the only issue in respect of the wholly retained properties (with the exception of item 16 the valuation of which is agreed) is the appropriate quantum adjustment (“QA”).  QA is the adjustment, either upwards or downwards, of the aggregate of the value of the individual units which make up the property to reflect the fact that the units are sold in one lot.

241.  In respect of the partially retained properties, again the issue is the appropriate QA.

242.  The value of the residual units of Fiori is agreed.  For the valuation of those of La Place de Victoria, there are 2 reports, 1 from each of the experts. 

Quantum Adjustment

243.  The respective experts, Mr Cullen for Yang and Mr Chan for the defendants, differ significantly on QA in respect of the wholly retained properties.  The swing is as much as 25% for item 3 (see Scott Schedule (2016 Valuations)), which is quite surprising. 

244.  Generally, I am impressed by Mr Cullen as an expert.  He was familiar with the substantial amount of details in this case, knowledgeable as a professional and was firm in his evidence.  Apart from minor wrinkles, eg, he had used both the date of Occupation Permit and the date of Certificate of Compliance in the assessment of finance costs (see C/381 and 574, §7.2), which is no longer relevant, I see no major fragility in his evidence.

245.  On the issue of approach, I am not attracted by that taken by Mr Chan.  It appears from his reports that he had taken too narrow a view on the justification for QA.  His reports only referred to investment risk (higher risk associated with purchasing an entire building). In cross-examination, he also referred to market evidence and market perception (buyers would expect a discount with the purchase of the whole building). 

246.  It appears to me that Mr Chan had failed to give adequate consideration to the quality of the properties and the market conditions, in particular the 3 properties situated at the Peak, which were described by Mr Cullen as “trophy properties”.  Mr Chan accepted that it is rare for properties of such kind to come onto the market, and that they will be sold quickly[86].  He also agreed that these are some of the safest investments (if one is to invest in the property market) in Hong Kong.  The capital appreciation alone (excluding rental income) of these properties from 2004 to 2016 ranged from 10.77% p.a. to 12.3% p.a. with compound uplift.  Thus, apart from being safe, these are very profitable investments.

247.  Mr Chan’s analysis was very much premised upon the proposition that the sale of the entire property will only attract a speculator who aims to resell it in individual units at a profit, and not an investor who would like to hold onto the property for long term.  The QA would reflect the speculator’s profit and costs of the resale[87].  However, the fact that Nan Fung, and later Crosby, had held onto these properties speaks volumes to their attraction as investment properties, quite contrary to Mr Chan’s suggestion that they would not be attractive to investors due to the low yield at below 2%.  I believe that it is a simple matter of supply and demand, and perhaps common sense, that the owner of these quality properties would not be interested to sell them at a discount. 

248.  As a further illustration of Mr Chan’s failure to have adequate regard to the market conditions, he had made the same QA for the Peak properties in 2004 and 2016 when it is clear that in 2004 the market was recovering from SARS whereas the market is quite buoyant in 2016 for the ultra-luxury sector.  

249.  There are other weaknesses in Mr Chan’s analysis, eg, the speculator may acquire the shares of the property holding company thereby reducing some of his costs of acquisition.  I also agree that Mr Chan’s analysis did not do justice to the advantages of owning the whole development as analysed by Mr Cullen.

250.  The rejection of Mr Chan’s approach means that it is unsatisfactory to rely on his QA, and the court is left with that of Mr Cullen.  However, with the large variation between the assessments of the 2 experts, I am uncomfortable to simply accept Mr Cullen’s assessments in their entirety.  Both experts agreed that property valuation is not a precise science, and a small percentage of variation is perfectly acceptable. In the premises, and on a board brush basis, I would adjust Mr Cullen’s QA assessments downwards by 3% in respect of the wholly retained properties as follows: item 1 (+7%); items 2 and 3 (+9.5%); and item 20 (-3%).

251.  In respect of the partially retained properties, Mr Chan’s evidence is that he would reduce the QA applied to these items if only a smaller number of units are involved.  For item 9, he would apply only 5-8% reduction instead of 12.5% which he originally assessed[88].  For item 11, only 3-6% reduction instead of 15%[89].  For item 14, 5-8% reduction instead of 12.5%[90].  The revised figures for items 9 and 11 are consistent with Mr Cullen’s assessments at -5% in both cases.  I therefore adopt -5% as the QA for items 9 and 11. 

252.  For item 14, Mr Cullen assessed the QA at 0%.  I am inclined to adopt the low end of the range given by Mr Chan, namely, -5%.

253.  Finally, on the valuation of the residual units at La Place de Victoria, Mr Cullen’s valuation is actually lower than that of Mr Chan.  Mr Yu has fairly indicated that he is content to rely on his own valuation.  I therefore assess the value of item 18(ii) at HK$58.757m as of 1 July 2016. 

254.  The value of the retained properties will have to be recomputed in light of the above findings. 

255.  Unfortunately, there are also issues with the proceeds received from sale and the rental received (see para 237(2)(i), (1)(ii) and (2)(ii)).  After the conclusion of Mr Yu’s closing submissions, Mr Dawes informed the court that the information contained in Annex B about proceeds and rentals is incomplete in that the figures put forward are not figures net of expenses.  He suggested that the parties should endeavour to come to an agreement on the correct net figures.  It was also pointed out that, as per footnote 25 of Yang’s Closing Submissions, the figures on rental income stated in Annex B are provisional due to issues on the data supplied by the defendants, and by letter dated 26 October 2016 comments on Annex B had been sought from the defendants’ solicitors. 

256.  Whilst Mr Yu accepted that the figures used in the computation of compensation should be net of expenses, he disagreed with any attempt to have the matters re-opened.  With the benefit of hearing both counsel, there is no dispute that Annex B was compiled based on the documents disclosed by the defendants pursuant to Yang’s request.  According to Mr Dawes, the request was made on 7 September 2016.  Mr Yu disagreed and said that it was made in July and August 2016. 

257.  Mr Yu accepted that where any error in computation can be identified, he would be happy to make the necessary amendments.  However, Mr Yu was adamant that no new document can be introduced after the conclusion of this trial.  He also expressed concern that some of the expenses suggested by Vivien were unusually large, and therefore could not be agreed by Yang. 

258.  The court was informed by Mr Dawes that the disclosure made by the defendants is incomplete in that due to the huge number of transactions (about 180,000), summaries were provided to Yang pursuant to her request for discovery.  The expenses incurred in the sales and rentals were not or not adequately reflected in the same. 

259.  I have to say that it is not easy to decide how best to resolve these issues.  It appears to me that, for whatever reason, the issues over net receipts were not ventilated at the trial.  On one hand, the court has to consider the fairness to the defendants and coming to a just determination.  On the other hand, they had had full opportunity to defend this action, and to lead what evidence they saw fit at this trial.  Yang cannot be criticised for relying on the documents disclosed by the defendants, especially when they had been confirmed by Karen as true and accurate[91].  I shall decide this on first principles.

260.  To begin with, there is no split trial.  The issue of quantum of compensation has always been part of this trial (see, eg, Joint List of Agreed Issues, para 21). 

261.  Secondly, the discovery obligation is squarely on the defendants, especially when the documents in question are exclusively within their possession.  Whilst it can be said that Yang was not helpless, and could have sought discovery from the defendants earlier, this does not alter the fact that the defendants have themselves to blame for not making proper discovery in good time. 

262.  By the same token, I see little reason to be sympathetic with the defendants for having to make discovery of very substantial information within a short time.  Further, discovery is a continuous obligation.  They could and should have reviewed the discovery made, and to remedy any deficiency in the same.  In other words, if the disclosed summaries were unsatisfactory, the defendants had the obligation to put that right. 

263.  Thirdly, it is rare for the court to allow the re-opening of a trial.  I have little doubt that the resolution of the arguments over net proceeds and net rentals will be a long and bitter battle, probably involving interlocutory arguments over, eg, the adequacy of discovery. 

264.  The court must balance the interest of Yang. She is of an advanced age and in very poor health.  It is highly undesirable for the resolution of this action to be delayed.  She has had a trial and is entitled to a judgment without undue delay.

265.  In the premises, I am driven to the conclusion that there should be no re-opening of this trial.  I draw support from the robust approach referred to by Ribeiro PJ in Libertarian, §138.   

266.  The upshot of all these is that, apart from re-calculating the value of the retained properties based on the above findings, the proceeds and rentals may have to be re-computed in the event of any error identified from the disclosed documents.  The calculations will impact upon the computation of interest.

Conclusions 

267.  In the premises, I declare that the Disputed Agreements have been rescinded.  Further, Yang is entitled to, at her choice, either equitable compensation calculated in accordance with the findings above or an account for profits.  Such election is to be made within 14 days from the date of this judgment, subject to any properly justified application for extension of time.

268.  In the event of an election for equitable compensation, the parties are to endeavour to agree the computation thereof within 14 days after election.  Where an account is elected, the parties are to endeavour to agree the appropriate directions therefor within 7 days after election.

269.  Mr Yu suggested that there should be a short hearing after the handing down of this judgment to determine the terms of the order to be made, and any consequential directions to be given, in light of the findings of the court.  It should also be mentioned that the amount of compensation, if elected, is very substantial and Vivien may have to make proposal on how it is to be paid.  However, the parties are encouraged to try to resolve their differences.  Any unreasonableness in doing so may be reflected in costs.  Minor disagreements may be resolved by the court on paper, for which purpose a succinct joint letter may be written to the court.  In the event of major disagreement, a further hearing is unavoidable.  I give liberty to apply.  The parties should bear in mind the observation made above on the need to conclude these matters without delay. They may jointly write to the court in the event of difficulty with the court’s dairy. 

270.  In the event of an election of equitable compensation, Yang is entitled to post judgment interest at judgment rate(s) until payment.  I dismiss the counterclaim.  I make an order nisi that the costs of this action and the counterclaim be paid by the defendants to Yang, with a certificate for 2 counsel, to be taxed if not agreed.

271.  Last but not least, I am grateful to all counsel for their able assistance. 

Annex I